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How to ESI Calculation

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ESI Calculation - Salary for ESI Calculation

The Employee State Insurance ("ESI") is a contributory fund with employer and employee contributions that allows Indian employees to join in a self-funded healthcare insurance fund.

The Employee State Insurance Corporation, a government agency, runs the scheme, which is governed by the ESI Act of 1948.

The ESI is the most comprehensive need-based social insurance programme for employees.

It safeguards employees from unwanted aunfavourableble circumstances. The programme provides both financial and healthcare benefits.

ESI applies to all non-seasonal factories with 10 or more year-round employees.

ESI is available to all establishments covered by the Factory Act and the Shops and Establishments Act.

This Act applies to units with 10 or more employees or those located in areas where the scheme is implemented.

Even if the establishments are covered by the law, not all employees are covered.

Therefore, what are the eligibility requirements for employees?

This Act applies to all employees whose monthly salary, excluding overtime, bonuses, and leave encashment, does not exceed Rs. 21,000.

How is the term Wages defined by the ESI Act?

Both the employer and employee ESI contributions are computed based on the employee's salary.

Some components are included while others are removed when calculating eligibility and wages for ESI contribution purposes.

Not all employee allowances, incentives, and payments become part of their compensation.

The ESI Act specifies the following inclusions and exclusions for the wage component:

The following is a list of items that should be included and excluded when calculating ESI on salary.

Items Included 

Items Excluded

Basic Pay

Entertainment Allowance

Dearness Allowance (DA)

Leave Encashment

City Compensatory (CCA) Allowance

Compensation for Redundancy

House Rent Allowance (HRA)

Gratuity

Sales Commission

Deduction for Health Insurance Premium

Meal Allowance

Tax Deductions

Medical Allowance

Annual Bonus

Special Allowance and Overtime

Annual Commission

Newspaper Allowance

Petrol Allowance

Education Allowance

Important Points Regarding Traveling Allowances

Recently, on March 8, 2021, the Supreme Court issued an order indicating that travel or travelling allowances do not fall under the criteria of ESI salaries.

Therefore, employers must exempt travel allowance from ESI contributions on the Rs. 21,000 monthly caps.

This only applies if you are adopting custom wage structures that include a "Conveyance Allowance" allowance.

ESI Calculation

The ESIC Act of 1948 sets the employer contribution at 3.25 percent of wages and the employee contribution at 0.75 percent of wages.

ESI calculation formula

ESI is based on a person's total earnings every month, minus any contributions made by the employer to EPF/ESI

(if those contributions are included in the employee's CTC).

Add up the basic pay and the allowances (DA + HRA + Medical + City Compensatory Allowance, etc.) to get the total pay.

ESI Calculation Formula with Example

The ESIC contribution rates are solely calculated on the basic salary paid by Employers.

The employee contribution is currently 0.75 percent of wages paid/payable, whereas :-

the employer contribution is 3.25 percent of wages paid/payable.

Employer contribution plus employee contribution equals total ESI contribution.

Let's imagine Mr Ajay earns Rs. 16,000 per month working in a factory.

This is how the contribution will look like :

Mr Ajay (Employee) Contribution 

= Mr Ajay's Basic Salary x 0.75%

= Rs. 16,000 x 0.75%

= 16000 x 75/100 = Rs. 120

Employer Contribution 

= Mr Ajay's Basic Salary x 3.25%

= Rs. 16,000 x 3.25%

= 16000 x 325/100 = Rs. 520

Thus, a contribution of Rs. 640 will be paid in total to ESIC as a contribution.

Employers are liable for deducting and paying employee contributions.

The employer is required to deposit the amounts within 15 days of the end of the month in which the deduction is made.

You are allowed to deposit the amounts either online or at any of the authorised SBI Banks or other authorised branches.

Example of how to Calculate ESI Contribution

Let's say that the ESI Act of 1948 says Bijay's wages are Rs. 12,000.

Then, the ESI calculation formula will be used to figure out how much each person should pay.

Mr Bijay (Employee) Contribution 

= Mr Bijay's Basic Salary x 0.75%

= Rs. 12,000 x 0.75%

= 12000 x 75/100 = Rs. 90

Employer Contribution 

= Mr Biay's Basic Salary x 3.25%

= Rs. 12,000 x 3.25%

= 12000 x 325/100 = Rs. 390

Thus, a contribution of Rs. 480 (Rs. 90 + Rs. 390) will be paid in total to ESIC as a contribution.

After figuring of Mr Bijay's contributions and taking Rs. 90 out of his salary Mr Bijay's employer is responsible for sending Rs. 480 to the ESIC within the time limit.

ESI Contribution Collection

Every month, the employer must pay his contribution and take the employee's contribution out of their salary's amount of contribution (the employer's contribution + the employee's contribution).

It must be sent to the ESIC within 15 days of the current month (when salary is paid) from which it was collected.

The Employees' State Insurance Corporation of India (ESIC) has given SBI and a few other banks authorization to collect payments on its behalf.

What are the Contribution Period and the Benefit Period?

The ESI scheme splits the year into two periods of six months each for making contributions.

The next year, there will be a time when these contributions will pay off.

In other words, the employee gets the benefits for the money they contribute during the first six months during the next six months (benefit period).

This rule is good for employees whose salaries go up by more than Rs. 21,000 during the contribution period.

Contribution Period

Benefit Period

1st April to 30th September

1st January to 30th June

1st October to 31st March

1st July to 31st December

Now, let's look at how an increase in salary helps the people who work there.

Let's say that Mr Bijay's salary in May 2022 was Rs. 20,000 From June 2022, it'll be Rs. 22,000.

In this case, both the employer and the Employer's ESI contributions are based on Rs. 20,000 for April through May and Rs. 22,000 for June through September 2022.

This is good for the workers because they will get more contributions.

But when the contribution period ends in September, the employee is no longer eligible for the financial and healthcare facility under the ESIC act.

But the employee only gets the benefit during the benefit period, which is from January 1 to June 30.

What are the benefits of joining up under the ESIC Act?

The ESIC scheme is a social security plan that was made to protect employees and their dependents in case of a medical emergency, disability, death, etc. The ESIC scheme has a number of benefits.

Benefits for Employees

• Medical Benefits:

The Employee State Insurance Corporation takes care of the employee's medical expenses and hospital bills as part of their medical benefits.

It also covers health care for the employee's family.

• Disability Benefit:

If a worker gets injured on the job and is either permanently or temporarily disabled, ESIC pays them their monthly salary.

When an employee is temporarily disabled, they get their monthly payment for as long as they are disabled.

When an employee is permanently disabled, they get their pay for the rest of their lives.

• Maternity Benefit:

The ESIC helps women who are planning a pregnancy by paying 100% of their wages for 26 weeks after the birth or for 6 weeks if the baby dies.

And if an employee adopts a child, they get paid for 12 weeks.

• Sickness Benefit:

If an employee is sick for more than 91 days in a year, ESIC pays them 70% of their wages every month for up to 91 days.

• Unemployment Allowance:

If an employee is forced to stop working or can't work again because of an injury that happened outside of work, ESIC gives them a cash allowance for up to 24 months.

Benefits for Dependents of Employees

ESIC provides the following benefits to the employee's dependents if he or she dies at work as a result of an injury:

  • Confinement Expenses 
  • Funeral Expenses, 
  • Vocational Training 
  • Physical Rehabilitation 
  • Skill Training Under Rajiv Gandhi Shramik Kalyan Yojana (RGSKY)

ESI return filing

The 1948 ESIC Act requires registered establishments to file ESI returns.

Employers can get Form 1 in PDF format from ESIC's official website, fill it out, and submit it online.

Last Date for Filing ESI

The filing deadlines for ESI returns for both periods are as follows:

For the contribution period of 1st April to 30th September

12th November

For the contribution period of 1st October to 31st March

12th May

Every establishment covered by the ESIC Act of 1948 must register with ESI in Salary to assure compliance with the Act and to ensure that its employees get their benefits.

The documents required for ESI registration

  • The list of documents required for ESI registration is shown below.
  • Document for Address proof of the company
  • Business PAN Card of the Company
  • Business PAN Card of the Company
  • Business or Commercial licence
  •  Employee information and wage structure details.
  • Bank account information
  • The Memorandum of Association, Articles of Association, partnership agreement, or other business documents.

Penalties for Non-payment of Employee Contribution 

  • The employer is responsible for contributing the employee's contribution as well as the employer's contribution with ESI in the employee's salary. 
  • It is a violation of the ESI act if the employee's contribution is deducted from their income but not paid by the employer.
  • Any non-payment, late payment, or fake payment may result in a Rs. 5,000 (five thousand) fine and up to two years imprisonment.

Frequently Asked Question : ESI Calculation

1. How is ESI calculated based on salary?

The salaries are calculated by adding the Basic Salary and Allowances (DA + HRA + Medical + City Compensatory Allowance, etc.).

Refer to the sample provided in the blog post for further clarification.

2. What wages are covered by the ESI Act?

According to the ESI Act, wages are the cash compensation paid or payable to an employee.

It includes any payment made to an employee during an allowed leave, strike, or lockout that is not illegal or a result of the termination.

Salary also includes any other payments made every two months or less. 

It does not, however, include contributions made by the employer to a pension fund or provident fund, a travel allowance, a provident fund, or any amount paid to the employee to cover work-related expenses.

3. What is the ESI limit?

The minimum pay required by the Employees State Insurance Act of 1948 is Rs. 21,000.

This sum is determined by adding basic pay and allowances such as HRA, DA, and Medical allowance and commission.

4. What is the minimum ESI contribution?

Currently, the employee contribution rate is 0.75 percent of their wages, while the employer contribution rate is 3.25 percent of the employee's wages paid or payable.

The employees who earn an average daily wage of up to Rs. 176 per day are free from contributing.

However, employers would contribute their proportional share for employees earning up to Rs. 176 per day.

5. How do I calculate ESI?

ESI is calculated based on the employee's gross wage.

According to the ESI Act, the employer contributes 3.25% of the employee's income and the employee contributes 0.75% of the employee's salary to the contributing fund, which is subsequently used to offer insurance coverage in times of hardship.

6. What are the benefits of ESI?

The advantages of ESI include the following:

  1. In the event of medical leave, 70% of wages up to a maximum of 91 days are granted as sickness benefits. 
  2. Medical coverage for employees and dependents 
  3. financial help for pregnant women 90% of pay is provided to dependents in the event of a worker's death on the job. 
  4. Cash compensation for a maximum of 24 months for temporary and lifetime for permanent work-related disability
7. What is the method of ESI contribution payment?

The employer must submit monthly contributions via the ESIC site for all of its employees who have been duly registered.

The employer must report the number of days for which wages are paid by the employee.

In addition to the SBI, the ESIC has enabled the online payment of ESI contributions through the payment gateways of 58 banks.

Employers must generate an online challan through the ESIC portal using their login credentials in order to deposit the complete monthly contributions of all employees at any SBI branch.

Disclaimer

The resources provided here are offered purely for educational purposes. No lawyer relationship is formed by accessing or using this website or its contents. This site's content does not represent legal or professional advice and should not be relied upon for such purposes or as a substitute for legal counsel from an attorney certified in your state.

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