ESI Calculation: How ESI Contributions Are Calculated and Paid

Employee State Insurance (ESI) or ESI Scheme is an integrated social health insurance and pension scheme of employees of both the Central and State government and also the Permanent employees of Private Enterprises / Establishments / Factories etc. and their family members, managed by the Employee State Insurance Corporation (ESIC), which was established under the ESI Act 1948. The ESI Calculation is the largest contribution-based health insurance scheme in the world which is designed to universalize access to health and sickness coverage for workers and their family members. Proper ESI Calculation ensures that all eligible employees benefit from this vital scheme.

Wages as per the ESI Act

The contributions (employee and employer) are made basis on the wages paid to the employees. Some of the inclusions and exclusions from the wage component are as follows:

Inclusions	Exclusions
Basic Pay	Washing Allowance
Suspension Allowancce or Subsistence Allowance	Annual Bonus
Overtime Allowance	Incentive Bonus
Wages paid during layoff	Production Bonus
House Rent Allowance	Inam or Ex-Gratia payment
Night Sift or Heat, Gas and Dust Allowance	Annual Commission
Conveyance Allowance and Area allowance	Service Charges
Medical Allowance	Gazetted Allowance
Newspaper Allowance	Exgratia payment during strike for travelling expenses
Education Allowance and Personnel Allowance	Saving scheme
Drivers Allowance	Hamals or Coolies employed at a particular time outside the premises of the factory or establishment
Food, Milk, Tiffin or Lunch Allowance paid in cash at a fixed rate	Expenditure on servicing of machines
Wages and Dearness Allowance for unsubstituted holidays	Commisssion to dealers or agents
Interim Relief	Service Contract
Attendance Bonus	Payment made on account of un-availed leave at the time of discharge
Hamals or Coolies employed at a particular time inside the premises of the factory or establishment	Commission on advertisement secured for newspapers, if not paid to the regular employee
Expenditure on annual or periodical services contract	Fuel Allowance and Petrol Allowance
Matinee Allowance	Entertainment Allowance
Shift Allowance	Shoes Allowance
Location Allowance	Payment made on account of gratuity on discharge or retirement
Compensatory Allowance	Payment made on encashment of leave
Cash handling allowance paid to cashier
Supervisory Allowance
Additional pay paid to training staff
Charge Allowance, Steno or Typist Allowance, Plant Allowance and Computer Allowance
Honorarium for looking after the hospital or dispensary
Gestetner, Photocopier or Printer Allowance
Personnel or Special Allowance
Machine Allowance and Convassing Allowance
First-aid Allowance
Exgratia payment if payment is made within an interval of two months

Computation of ESI

Understanding the ESI Calculation is crucial for both employers and employees to ensure compliance and proper financial management.

The ESI Calculation process is straightforward but essential for both employers and employees. Employers must understand the ESI Calculation to manage their financial responsibilities effectively. Accurate ESI Calculation not only ensures compliance with the law but also guarantees that employees receive the benefits they are entitled to.

When discussing ESI Calculation, it is important to note that the rates of the ESI contribution are calculated based on the wages paid. Understanding how ESI Calculation works is vital for accurate payroll management.

The rates of the ESI contribution are calculated on the wages paid. Currently, the employee contribution is 0.75% of wages paid/payable, and employer contribution is 3.25% of wages paid/payable.

Total ESI Contribution = Employer’s Contribution + Employees Contribution

Let us say Mr sanjay Hard Working with wages of Rs.18,000 work in a factory unit.

The ESI Calculation for Mr. Sanjay illustrates how contributions are determined. Knowing the ESI Calculation helps both employees and employers understand their financial obligations.

The contribution will be as follows:

Employee Contribution – 0.75%*18,000 = Rs.135 
Employer Contribution – 3.25%*18,000 = Rs.585

In this context, the ESI Calculation is crucial as it informs employees of their contributions and entitlements. Employers must ensure that the ESI Calculation is done accurately to avoid penalties.

The example of Mr. Hard Working reinforces the significance of correct ESI Calculation. Each increment in wages affects the ESI Calculation, thereby impacting the contributions.

Mr. Diligent’s case further highlights the importance of continuous ESI Calculation to determine eligibility for benefits. Regular updates in the ESI Calculation ensure that all parties are informed of their rights and obligations.

So a total contribution of Rs.720 (135+585) will be made.

Consequently, regular ESI Calculation by both parties fosters transparency and accountability within the system, ensuring that employees receive their due benefits.

Employee State Insurance Contribution Collection
An employer has to pay and deduct the employees’ contribution while paying his own contribution for every employee. The ESI contribution has to be paid to ESIC within 15 days of close of calendar month in which the contribution is incurred. The contribution can be paid online or by visiting the designated branches of State Bank of India or other designated branches of Banks.

Understanding the advantages of the ESIC member benefits ties back to the ESI Calculation process. Knowing how ESI Calculation affects benefits can empower employees.

Contribution Period and Benefit Period
Employee would continue to be in contribution period even if his wage goes up from the threshold limit of Rs. 21,000.

For example, for Mr Hard Working, his wage, until end of June 2020, was Rs.18,000. From July 2020, his wage increased to Rs.22,000. Therefore, his contribution period will be until end of September and he will receive benefit until end of following year, i.e. 30th June.

Another way of explaining this would be to consider Mr Diligent who was contributing at a wage of Rs 20,000 till October 2020. His wage increased to Rs 23,000 in the month of November 2020. Contribution will continue on the revised salary till 31st March, 2021 and he will receive the benefit till December 2021.

Name	Salary Revision	Contribution Period	Benefit Period
Mr Hard Working	July 2020	1st April 2020 – 30th September 2020	1st January to June 2021
Mr Diligent	November 2020	1st October – 31st March 2021	1st July to 31st December

Hence ESI contribution must be made by both employee and employer and the benefits help the employee in unfortunate circumstances.

What are the Advantages of Being an ESIC Member?

The advantages of signing up for this Employees’ State Insurance Scheme (ESIC) are numerous. Here are a few examples:

• Sickness benefits at a rate of 70% (in the form of pay) will be paid in the event of any certified illness lasting for a maximum of 91 days in any year.
• Medical benefits to an employee and his/her family members.
• Pregnant women are entitled to maternity leave (paid leaves).
• If an employee dies on the job, 90% of their pay is paid to their dependents every month for the rest of their lives.
• Temporary disablement benefits in case of employment injury at the rate of 90% of wages till the disability continues.
• Permanent disablement benefits at the rate of 90% of wages is given every month depending upon the extent of loss of earning capacity certified by a Medical Board.
• Expenses associated with the funeral of Rs.15,000.

Returns Registration and Filing of ESI in Salary

Employers must follow the outlined procedures for ESI Calculation to ensure that contributions are filed correctly. This includes a thorough understanding of the ESI Calculation requirements as per the Act.

An employer covered under the Employee State Insurance Act 1948 (‘Act’) must register with the ESIC to pay the ESI contibutions and file returns. The process is as follows:

• An employer needs to keep all documents ready for reference.
• Next, an employer must register on the ESIC website and file Form 1 to register the establishment with ESIC. 
• ESIC will verify the details and issue a 17 digit unique number. This unique number is required for all filings.
• Every employee will receive an ESI card after registration stating all details by the employer. 
• Employers can pay the monthly ESI contribution amount online on the ESIC website through e-Challan.
• The contributions towards ESI must be paid to the ESIC on or before 15th of every month online. These contributions are very beneficial to employees, and hence the provisions for non-payment or delayed payment are very stringent.

On successful registration of the establishment, employers can file returns online. To file ESI returns online, the employer must follow the below-mentioned procedure:

• Employer must log in to the official ESIC website by entering the credentials received at the time of registration.
• Once the employer is able to log in using the credentials, there is a list of actions that are available. For instance, modify employee details, report an accident and so on.
• The employer must select the ‘File Monthly Contibutions’ option.
• Next, the month, year and contribution details must be entered and then click on the ‘Submit’ button.
• Once the contibutions are made, go to the ‘List of Actions’ and click ‘Generate Challan’.
• The challan must be downloaded and documented for future reference and inspections.
• The half-yearly return of ESIC for the period April to September is due by 11 November, and October to March is due by 11 May.

Documents Required for Registration of ESI 

The following documents are required for obtaining registration of an ESI member:

• Address proof of the business
• PAN card of the business
• Details of all partners, directors, and shareholders
• A license under the Factories Act or Shop Establishment Act
• Basic documents required as per the nature of entity – Articles of Association, Memorandum in case of a company, partnership deed in case of a partnership and Limited Liability Partnership
• Details of all directors, partners, and shareholders
• Details of all employees and their salary structure
• Bank details

To check the Claim Status please follow the below steps.

1. Open ESI Portal or UMang App
2. Enter your Insurance Number or E S I Number / IP (Insured Person) Number and click on “Get OTP” button.
3. Enter the OTP received on mobile number in Right box & click on “Submit” button.
4. Under the “Service Menu” click on option “Claim Status” .
5. If there are any Claim benefits processed by you, the details will be displayed on the screen.
6. You can download the PDF or Take Screen Short.

Consequences of Employee Contribution Non-Payment or Late Payment

• Amount of contribution so deducted from wages of employee by employer is said to have been entrusted to employer and responsibility of such employer shall be to deposit contribution so entrusted to him to ESIC.
• Not crediting or late payment of employee’s contribution already deducted from wages of employee shall attract a penalty under ESI Act.
• Section 45/49 of ESI Act states that Failure to pay, delay in payment or falsehood in payment is punishable for a maximum term of 3 years which shall in no case, however, be less than 1 year and also he shall be liable to fine which shall be minimum of Rs. 10,000/.
• Employer shall also be liable to pay simple interest @ 12% per annum on the amount of contribution due and delayed.

The half-yearly return must accurately reflect the ESI Calculation made throughout the period to avoid discrepancies.

Collecting the necessary documents for registration involves understanding the ESI Calculation process to ensure all required information is available.

By following these guidelines related to the ESI Calculation, employers can streamline the process and minimize errors.

Ultimately, it is the responsibility of the employer to ensure that ESI Calculation is performed accurately to protect both the company and employees from potential legal issues.

In summary, ensuring an accurate ESI Calculation is essential for compliance and the financial well-being of employees.