ESI

Employee state insurance Act, 1948

Dr. Showry
 Content
Ch Chapter Title Privisions
1 Preliminary 1- 2
2 Corporation, standing committee 3-25
and medical benefit council
3 Finance and audit 26-37
4 Contributions 38-45
5 Benefits 46-59
6 General 60-73
7 Scheme for other beneficiaries 73
8 Adjudication of dispute and claims 74-83
9 Penalties 84 -86
10 Miscellaneous 87-100
 Introduction
• Employee state insurance Bill
– Passed on 2 April, 1948
– Force from 19th April, 1948
• Payment of wages or benefit during periods of sickness
➢ 1951, 1966, 1975, 1984 and 1989.
• Largest integrated need-based social insurance scheme for emp.
• Protects employees in times of uncertain & unfortunate events
• Provides social security to employees in organized sector
– ESI Fund formed by - 0.75Contributions both from the employer
and employee

– Enables Indian employees to take part in a self-financed, healthcare,

insurance fund
 Aims and objectives
• Multi dimensional social security scheme which provides for
cash benefits to employees
– Legislation for Health insurance & treatment
– Sickness
– Employment Injury
– Maternity
– Medical facilities in kind
– Funeral benefit
• The scheme provides
– Cash benefits
– Healthcare.
• New Chapter VA – Extend the Benefits to family
 Applicability
• All non-seasonal factories
– having 10 or more employees
• All the establishments
– Covered under the Factory Act and Shops and
Establishments- Yes
• The units that have 10 or more employees
• Units located in the scheme-implemented areas
• NGO may not covered…..
 Coverage - Two Conditions
• Are all the employees eligible under the ESI Act ?
• The eligibility criteria
– An establishments be covered under the ESI Act
– Monthly income of the employee excluding OT, bonus, leave
encashment etc should not exceed Rs.21,000
• Eligibility Salary Ceiling
• Employees aggregate Wages not exceed Rs. 21,000 - 2017
– Moon … 21000 below equal 21000 21000
– All employees of a covered unit, whose monthly income is less than or
equal to Rs 21000 are covered
• Apprentice is excluded
• Consultants are excluded
 Example
• Current salary of the following employees working
in a factory are as given below
• Determine who are eligible to receive ESI benefits
based on the salary

Employee Salary Eligible for ESI

1111 15000 25000 Y
2222 23000 N
3333 21000 Y
4444 21500 N
5555 10000 y
 Applicability
• All factories
– 1. Employing 10 or more irrespective of their monthly earnings.
– 2. Government Factories if employees do not receive similar or
superior benefits through any other scheme
• Extended gradually to
– Shops, hotels and restaurants, cinemas, preview theatres, newspaper
establishment, road motor transport
– New class of establishments 20 more employees
• State Govt in consultation with the Corporation, and central
govt extend to Other industrial, commercial establishments,
• Once applied always be applied - continue to be governed
• Number of employees at any time falls below the limit
• Cease of the manufacturing process with power
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 Applicability
• The State Government may extend
➢ Establishments , industrial, commercial, agricultural, in
consultation with the Corporation with the approval of
the central government by one month notice of its
intention in the official gazette.
• Not applicable to factories or establishments,
➢ State /Central Government, they are in receipt of social
security benefits similar or superior to the ESI benefits
– Seasonal factories , Mine or railway shed,
– Indian Navy, Airforce and military
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 Applicability
• Principle Employers
– An employee who has been employed by principle
employer to work in a factory or outside the factory to do
• Immediate employer
– An employee not been employed by principle employer
but by representative of principle employer to work in a
factory or outside the factory to do work related to factory
• Contractor
– Employee employed by any contractor to work in a factory
or outside the factory for work related to factory –left to
hire
• An apprentice who apprenticeship is extended
 Employees
• Any person employed for wages in or in connection with work
• Does not make any distinction between
➢ Casual or temporary employees
➢ Technical or non-technical.
➢ Time-rate or piece-rate basis.
➢ Directly by the principal employer -those employed by/through
contractor
➢ Outside the factory premises under the supervision of principal
employer
➢ On premises of factory and outside the factory , administration ,
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purchase, Sales raw material, distribution
 Fund
• The scheme is managed by Employees’ State Insurance
Corporation
– A government entity, that is a self-financing, social
security, and labor welfare organization.
• The entity administers and regulates ESI scheme
– As per the rules mentioned in the Indian ESI Act
• ESI fund is created by the central govt
• Contributions from both employers and employees
• All contributions paid under the Act
– Are deposited into a fund called ESI Fund.
• Employer
– Should get the factory/establishment registered with
regional office of E.S.I. Corporation within 15 days
 The contributions
• On the basis of wages paid to the employees.
• Inclusions and exclusions from the wages

Inclusions Exclusions
Basic Pay, DA, special bonus Entertainment Allowance
Subsistence allowance Retrenchment Compensation
City Compensatory Allowance Statutory Bonus, Leave Encashment
House Rent Allowance Deduction of health insurance
Meal allowance-OT-night shift Tax Deductions
Attendance and Overtime Pay Gratuity
 Salary components applicable to ESI
deductions?
• ESI deduction can not be understood without being clear about
Gross Salary
• ESI contributions are calculated on Gross Salary
• Gross salary is the total income earned by the employee before
any deductions are made for Ex- health insurance, EPF, IT etc
• Net Pay…… Gross Pay
• Components not considered for ESI calculation
– Annual bonus 8.33% …20%
– Retrenchment compensation- inability of employer
– Encashment of leave -
– Gratuity
 Contribution amendment

Party Contributions from Jan 1, 1997 Contribution July 1, 2019

Employer 4.75% of gross pay 3.25%

Employee 1.75% of gross pay 0.75%

Net effect 6.5% of gross pay 4.0%

 Contribution Period-Benefit Period

There are two contribution periods each of six months

duration
Two corresponding benefit periods also of six months
duration

Contribution Period Cash Benefit Period

1st Jan to 30th June
1st April to 30th September

1st October to 31st March 1st July to 31st December

 Example- Contribution
• The rates of contribution, as a percentage of gross
wages payable, is explained in the table below
• 1000 – 600000 7200000

Party Calculation Sum

Employee Contribution 0.75%*15,000 112.5
Employer Contribution 3.25%*15,000 487.5
Total contribution 4.00 600
 Example- Contribution
• The contribution of Mr Hard Working, a worker in factory
drawing wages Rs. 18,000 will be as follows:

Party Calculation Sum

Employee Contribution 0.75%*18,000 135
Employer Contribution 3.25%*18,000 585
Total contribution 4.00 720
 Contribution

• The onus of deducting the contribution and depositing the it is

on the employer.
• Must deposit the amount online or to authorized designated
branches of SBI within 15 days of the end of the calendar
month in which the deduction is made- penalty
 Increase in Salary above 21000
• Payroll HR often face confusion if employees salaries change
• If the gross salary of an employee exceeds Rs. 21,000 a month
– The employee continues to be covered under ESI scheme till the end of
that contribution period.
– The contribution is deducted on the new salary
• If an employee’s gross salary increases in June from Rs.
18,000 (within ESI limit) to Rs. 22,000 (above ESI limit)
– The deductions for ESI will continue to happen till the end of the ESI
contribution period i.e. September.
– The deduction amount for both the employee and employer will be
calculated on the increased gross salary of Rs. 22,000.
– At the end of the contribution period, as the employee salary is more
than the ESI limit, no further deductions and contributions are required
– Employee will be covered under ESI till 30th June of following year.
 Example
• Mr. Growth earns a wage of Rs. 20,000 till Oct 2020
• From November, Salary is revised to Rs. 23,000
• Contribution period is 1st Sept 2020 – 31st March, 2021

• Is he covered ? Already covered

• Hence, the deduction must continue on the revised salary up to
31st March 2021
• Benefit period is 1st July to Dec 2021
• He will be eligible for the benefit up to December 2022
• From April stop deduction
• From Jan 2023 he is not covered….
 What are the six Benefits offered
• Do noy opt for any other benefit
• ESI is superior , covers from day 1- within one hour register
the employee
• 6 types of benefits to insured persons, their dependants
– Sickness benefit
– Maternity benefit
– Disablement benefit
– Dependants' benefit
– Medical benefit
– Funeral Expenses

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 Benefits

Benefit Type Qualifying condition Standard Duration

Benefit Rate
Sickness 78 Days contribution 71% of wages 91 Days
Maternity 70 Days Contribution 100% of wages 26 weeks
8 w +18W
Disability 90% Till get well
Dependant 90% Till Life
Medical Treatment
Funeral Rs 10000
 Sickness benefit
• Periodical payments in cash to an insured employee
– Certified by medical practitioner as specified by ESI
• (a) If it occurs during any benefit period
• (b) If the contributions in respect of him were payable for not
less than half the number of days of the corresponding
contribution period.
• If an employee works for less than 156 days – then
contribution is paid for atleast 78 days
• Daily rate of sickness benefit shall be the standard benefit rate
Corresponding to the average daily wages of that person
• If an employer has provided for the sick leave then cannot
force an employee to avail the sickness benefit
• Sickness benefit not given for holidays or strike
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 Obligations of employee
• While taking Treatment at ESI hospital
– Be under the Supervision of medical staff
– Not to act in ways that decreases chances of recovery
• Not claim two benefits at a time.
a) Sickness benefit and maternity benefit
b) Sickness benefit and disablement benefit for temporary disablement,
both maternity benefit and disablement benefits for temporary disablement.
c) The employee has to choose only one benefit.
• Employee compensation Act -1923 is social assistance while
ESI is social Insurance
– Insured employee or dependant is barred from receiving or recovering
any compensation or damages for disability suffered during work under
Workmen’s Compensation Act. 25
 Maternity Benefit
• Payable to an insured woman in form of periodical payments
– Confinement,
– Miscarriage
– Sickness
– Premature birth
• Confinement ”
– labor resulting in the issue of a living child
– labor after 26 weeks of pregnancy resulting in issue of a child whether
alive or dead
• Eligibility –
– If contributions were payable for at least 70 days in the two immediate
preceding contribution periods

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 Maternity Benefit
• Standard Benefit Rate - 100%
• 8 weeks before and 18 weeks after delivery
• 12 weeks if above 2 children
• Rs 1200 for commissioning mothers who adopt a child
• Medical bonus of Rs.250 if confinement at a place where
medical facilities under the ESI Scheme is not available
• Rs 3500 if ESI is not available
• ESI offers higher benefit than the Maternity benefits but
exclusion Rs 21000 and above so, go for health insurance
 Disablement Benefit
• Periodical/Monthly payments paid to an insured person for
• Disability resulting from employment injury and occupational
diseases- listed in the Schedule
• Partial - Reduces the capacity to work
• Total - Incapacitated for all works
• Accident – Dunning Kruger effect
• While traveling by employer’s transport
• While meeting emergency/ trying to rescue persons or
to minimize serious damage etc
• Temporary and permanent Disablement
– Risen out of/ in course of
• Place/time Should not be unrelated to the employment.
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• Action/Work fone for purpose and in connection with
 Rehabilitation Allowances
• Physical Disability Rehabilitation
– To transfer to any dept due to loss of capacity
• Vocational
– Train the person to do another work in another department
– Paying an amount of Rs 123 minimum or fee actually paid
which ever is maximum to impart skills etc
• Occupational Disease
• Contracting of occupational diseases
– As specified in the third schedule of the Act
• Disablement benefit at the ‘full rate’ is payable for injury
• Arising out of
• In the due course of employment
 Determination of Disability
• Who will determine whether a person is disabled
• Medical Board
– Case of permanent disability is referred to board
– Medical board makes provisional assessment
• Employee insurance Court
– Decision of Medical board is appealed
– Employee insurance Courtmakes final assessment
• Appeal
• After 6 months of provisional assessment
• Before 5 years of final assessment
 Dependants' benefit
• An insured person dies as a result of an employment injury
• Benefits periodically paid to dependents of deceased employee
– Wife 90% of standard benefit Rate for the wife for life or
until she marries again
– Legitimate son and legitimate daughter , until age of 25
– Dependant Parents Until Death
• No qualifying conditions
– Payable to the dependants even when he has paid no
contributions during his insurable employment.

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 Medical Benefit
• Given for
– Insured Person and Dependants
– Extended to the family from 2010
• Qualified Condition
– One who is eligible for Sickness Benefit, Maternity benefit,
automatically gets eligible for Medical Benefit
• An insured person suffers from permanent disability
– Receives continuous medical benefit till superannuation
– To receive medical benefits after superannuation at 58
years then Pay Rs 10 per month till 53 years
• One Who receives voluntary retirement is eligible for benefits
• Wife is eligible for medical benefits on premature death of
worker 32
 Contd..
• A person shall be entitled to medical benefit during
any period
– for which contributions are payable in respect of him
– in which he is qualified to claim sickness benefit
• Use of Maternity benefit and disablement benefit as does not
disentitle him to medical benefit
• An insured person in respect of whom contribution ceases to
be payable under the Act may be allowed medical benefit for
such period and of such nature as may be provided under the
regulations.

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 Funeral Expenses
• Payment towards expenditure of funeral
– Claim within 3 months after death
– Payable to eldest survive member of deceased
• Insured person, not have or not living with family
– Pay to onr who actually incurs funeral expenditure
• Funeral benefit is not to exceed the amount prescribed
by the central government.
– Max funeral expenses 31st March 2002 was Rs.2,500.
– Now it is (10K)

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 Fines and Offences
• 84 Punishment for false statement 6 months and Rs 2000
– Cause any increase in pay or benefit under Act
– For causing any benefit to be made where no benefit is
authorized
– Avoiding any payment to be made by himself or enabling
any other person to avoid any pay
– knowingly makes or causes any false statement
• 85 Punishment for failure to pay contribution
– Not be less than one year and 10 k -extend to three years
• Others – 6 months and Rs 5 K
– Deducts wages of an employee for whole contribution, or reduces the wages or any privileges or
benefits admissible to an employee, fails or refuses to submit any return required by the regulations or
makes a false return, or obstructs any Inspector or other official of the corporation in the discharge of
his duties, or is guilty of any contravention of or non-compliance