A guide on ESI Calculation and Scheme for employers

Written By Sakcham Tiwari

July 28, 2021
ESI or Employee State Insurance is a scheme introduced by the Government of India for the benefit of the employees. The ESI is essential payroll compliance in India for certain industries and entities.
ESI calculation

ESIC or Employee State Insurance Corporation is responsible for managing the ESI scheme or Employee State Insurance scheme. It is an autonomous body created by the Government of India under the Ministry of Labour and Employment in 1948. 

The ESI calculation is essential payroll compliance in India for certain industries and entities. This article aims to provide a well-detailed guide on the ESI scheme for employers so that all their questions regarding ESI are answered here. 

What is the ESI Scheme?

ESI scheme is an insurance cover for employees in India in order to protect them and their family members/dependents with medical care. It was passed under the Employees’ State Insurance Act, 1948, also known as the ESI Act. It was the first major legislation passed by the Parliament on Social Security for workers after India’s independence. 

ESI offers various cash benefits during loss of salary due to disability and also offers pension to the dependents of the employee in the case of death or disablement due to employment injury. It is important to note that ESI makes up for one of the most essential payroll compliances in India along with EPF, PT, and TDS. 

esi calculation

Which entities are covered under ESI scheme?

The ESI Act of 1948 provides medical cover among other benefits to the employees working in the following establishments and organizations:

  • hotels and restaurants
  • shops
  • cinemas
  • road transport
  • private educational or medical institutions
  • newspaper establishments
  • organizations where 10 or more workers are employed

Thus, under the ESI Act, the employees working at the above establishments and earning up to Rs 21,000 per month are entitled to the ESI scheme. 

What is the applicability and extent of coverage of ESI?

ESI is applicable to all parts of India and covers all establishments that are enlisted under either the Factories Act or under the Shops and Establishments Act with 10 or more workers. Under the scheme, every employee must be covered by their employer as long as they are under the wage threshold of Rs 21,000.    

Documents required for ESI registration

The following documents are required for ESI registration:

  1. Registration certificate of the establishment acquired under:
  • Factories Act, or
  • Shops and Establishment Act
  1. Certificate of Registration in case of Company, and Partnership deed in case of a Partnership. 
  1. Memorandum of Association and Articles of Association of the company
  1. PAN Card of the Business Entity as well as of the employees
  1. List of all employees working in the business
  1. Salary details of all the staff members
  1. A cancelled cheque from the Bank Account of the company
  1. List of Directors and list of shareholders in the company
  1. Records showing the attendance of all of the employees

Step-by-step process of ESI registration

The process of ESI registration is done fully online by the employers and no physical application is needed. Here are the steps as to how you can register your company with ESIC:

  1. Firstly, you need to go to the ESIC Portal and click on the ‘Login’ button. 
  2. On the resulting page, you will need to click on the ‘Sign Up’ option. 
  3. Next, you need to enter the name of your company and your name along with state, region, email address, and phone number. 
  4. You will need to check a box confirming that your establishment is under an exclusive labour contract, manpower suppliers, security agencies or contractors supplying labour categories. 
  5. When you are done, click on the ‘Submit’ button. Then, you will receive an email with your login information. 
  6. So, you will now need to visit the ESIC Portal again to login with your new credentials. 

For registration of new employee

When a new employee joins your company or factory, here is how you can register them on ESIC:

  1. After you have logged into the ESIC Portal, you need to click on the option, ‘New Employer Registration’.
  2. Then you need to select the type and click on the submit button.
  3. The next page will require you to enter the name of the unit, complete the postal address of the establishment and the police station under whose jurisdiction your unit is located. 
  4. You need to specify whether the building or the premises of the establishment is owned or rented. When done, go to ‘Next’.
  5. On the next webpage, you have to enter the nature of the business and its category including the PAN details and other information. Click on ‘Next’ when done. 
  6. Then you will need to enter the date of commencement of the establishment and license details (if any). 
  7. You will also need to select the constitution of ownership and owners’ details. Then ‘Save’ the details and click on ‘Next’. 
  8. Now you will need to enter the number of employees in your staff and the number of employees with income less than Rs 21,000. When you have done that, click on the ‘Save’ option to save the details.
  9. The new webpage will ask you to enter the date when the first 10/20 workers were hired. After that, go to ‘Employee Declaration Form’. 
  10. If the insured person is already registered, select the ‘Yes’ option and fill in the IP Number and date of joining. If the insured person is not registered, select the ‘No’ option and go to ‘Continue’. 
  11. For submitting, enter the name of the IP, their father’s name, address, date of birth, gender, marital status, family details, and date of joining. 
  12. Then click on the checkbox before clicking on ‘Submit’. 
  13. When you are done filling in all the details, click on the ‘Close’ option on the new page. 

For downloading Challan for future reference

  1. The next page on your screen will require you to select the respective ESI branch office and the inspection division
  2. Then click on the checkbox that confirms that the information you provided is correct and then click on the ‘Submit’ button to be redirected to the new page.
  3. The subsequent page will require you to click on the ‘Pay Initial Contribution’ option and then click on ‘Submit’. This will provide you with a Challan Number that you will be able to use for future reference.
  4. Next, you need to click on ‘Continue’ to get redirected to the payment page. 

Once you have completed the payment process, you will be provided with a system generated ESI Registration Letter known as C-11, which will be sent to your email. This C-11 will act as proof that you have registered your company with the ESIC. 

What are the ESI contribution rates?

The ESI scheme is contributory in nature and requires contributions from both the employer and the employee. Here are the present contribution rates for employer and employee:

Employer’s Contribution (%)3.25%
Employee Contribution (%)0.75%

How to make ESIC payments online?

Making your ESIC payments online is now incredibly easy on the ESIC portal. The ESI contribution payment deadline is the 15th of every month, so make sure that you pay the contribution before that. The contributor needs to have an active SBI bank account for paying the ESI contribution. Here are the step-by-step instructions for making ESIC payments online:

  1. Firstly, you need to log in to your ESI account using your login credentials.
  2. Then navigate to the ‘Online Monthly Contribution Screen’ and click on the ‘Preview’ button.
  3. This will allow you to check the personal details that you have previously filled in. Once checked, you can click on the ‘Submit’ button for submitting the monthly contribution details to ESIC. 
  4. Employers are also allowed to manually type the contribution of each employee and upload MS Excel files as an attachment. 
  5. You can carry out the payment using online payment through SBI internet banking only. So, you need to click on the ‘Pay Online’ option and then select the ‘OK’ button. 
  6. Don’t forget to save the generated Challan number for future reference and then continue the payment process. 
  7. After your payment is completed, you will see a confirmation message displayed on the screen. 

Salary Components applicable to ESI deductions

ESI contributions are calculated on the gross monthly salary of the employee. Gross Salary is the total earnings of an employee while working on their job prior to any kind of deductions like taxes, health insurance, social security, etc. 

When ESI calculation takes place, the salary includes all the monthly payable amounts such as:

  1. Basic pay
  2. Dearness allowance
  3. City compensatory allowance
  4. House Rent Allowance (HRA)
  5. Incentives
  6. Attendance and overtime payments
  7. Meal allowance
  8. Uniform allowance
  9. Other special allowances

However, it is important to note that the gross monthly salary does not include Annual Bonus, Retrenchment compensation, and Encashment of leave and gratuity. 

ESI calculation

Let’s take an example:

For ESI calculation, you need to consider various elements of an employee’s monthly salary such as Basic Pay, Dearness Allowance, City Compensatory Allowance, Attendance and Overtime Payments, HRA, Incentives, Uniform Allowance, Meal Allowance, and other special allowances. 

An employee has a gross salary of Rs 10,000 per month. 

So, 

The employer’s contribution to ESIC will be = Rs 3.25/100 x 10,000 = Rs 325

The employee’s contribution to ESIC will be = Rs 0.75/100 x 10,000 = Rs 75

Therefore, in this case, the total contribution to ESIC in one month will be Rs 400

Returns filed every year after the registration is finalised

Here is a list of returns that are filed every year once your registration with the ESIC is complete:

  • Register of Attendance of the Employees
  • Register of wages.
  • Monthly returns and challans.
  • Register for any accidents which have happened on the premises of the business.
  • Form 6 – Register.

ESI deadlines

The monthly contribution to ESI is required every month and is due on the 15th of every month. Thus, the employer needs to pay both their and the employee’s monthly contribution before the due date.

Apart from this, the employer also needs to file an ESI return on a half-yearly basis. The due dates for filing half-yearly ESI returns are as follows:

  • April to September – 11th November
  • October to March – 11th May

These dates are sometimes extended by the ESIC and they release an official notification, whenever that happens. 

Penalty for non-payment or late payment of contributions

Employers who fail to pay monthly contributions on time will be penalized. They will have to pay a simple interest of 12% per annum for each day of delay payment in addition to the contribution amount. 

Non-payments or false payments from employers may result in imprisonment up to 2 years or a fine of up to Rs 5,000 under the ESI Act. 

Benefits under ESI

There are many benefits for the Insured Person under ESI including: 

  • Medical Benefit
  • Disablement Benefit
  • Sickness Benefit
  • Maternity Benefit
  • Dependent Benefit
  • Funeral Benefit
  • Confinement Benefit
  • Vocational Rehabilitation
  • Physical Rehabilitation
  • Unemployment Allowance
  • Death Benefit

If you wish to know more about the benefits, you can check out Everything you need to know about ESI. 

How does an automated payroll software help in ESIC implementation

ESI can be a lot of hassle if managed and calculated manually. It involves excessive desk work and filling in challans and structures on paper and then submitting them to banks. Managers of small businesses find this extremely tedious and time consuming. Not to mention, manual calculation of ESI and payroll can lead to payroll errors. 

This is why ESIC recommends online filing and payments. Moreover, it can be of huge help if you use automated payroll software online for accurate processing of payroll of all employees while taking care of legal compliances and tax deductions.

Workex provides one of the best options for payroll outsourcing in India. Our automated payroll software makes payroll and compliance management incredibly easy by providing the following features:

  • Accurate PF, ESI, and other statutory calculations
  • Ensuring 100% compliance with all legal requirements
  • Taking care of tax deductions while payroll processing
  • Accurate payroll calculation of each employee

Our payroll management system is available on Workex app, which you can install from Google Play Store.

Conclusion

This is a complete guide about ESI, giving all the information that an employer needs to know about ESI. The Indian government has made it mandatory for certain establishments to be registered under ESIC and follow all the rules under ESI Act including proper payments of monthly contributions. Therefore, every employer must know about the ESI in detail and this guide is meant to help you with that. 

Compliance

Written by Sakcham Tiwari

Hi! I am a content writer and editor with a master's degree in Digital Publishing from Oxford Brookes University. I have worked for a myriad of websites, blogs, and digital magazines. When I am not writing/editing articles and content for clients, I am either immersed in books, or scribbling poems, watching Netflix, or just scrolling through Twitter.

Read more posts

Check out the most trending job industries now!

Compliance challenges faced by the SMEs in India
Compliance challenges faced by the SMEs in India

Indian SMEs are constantly battling obstacles in order to achieve their business goals and compliance with legal requirements is one of them. This article gives you a detailed account of the compliance issues that SMEs in India generally go through.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *