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What is ESIC in Salary

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What is Salary in ESI?

"ESI" stands for "Employee State Insurance." It is a "contributory fund," which means that both the employer and the employee put some money into it.

This allows Indian workers to take part in a self-funded health insurance fund.

The scheme is run by a government agency called the Employee State Insurance Corporation (ESIC), and it is governed by the ESI Act of 1948.

The ESI is the largest need-based social insurance programme for employees that are also integrated.

It protects the employees when bad things happen or when things aren't clear. The programme provides both money and health care.

ESI covers all factories that are open year-round with 10 or more employees.

ESI is available to all businesses that are covered by the Factory Act and the Shops and Establishments Act.

This Act covers the units that have 10 or more employees or are in the areas where the scheme is being used.

Even though the Act covers businesses, not all employees are covered by the Act.

So, what are the requirements for a worker? 

This Act applies to all employees whose monthly pay, not including overtime, bonuses, or paid time off, does not exceed ₹ 21,000.

In November 2021, almost 10.28 lakh new members joined the ESIC-run social security plan, compared to 12.39 lakh the month before.

This shows how many people work in the formal sector in the country.

Pay according to the ESI Act

Both the employee and the employer make payments based on how much the employee is paid.

Some things that are included and not included in the wage component are:

Inclusions

Exclusions

Basic Pay

Entertainment Allowance

Dearness Allowance

Retrenchment Compensation

City Compensatory Allowance

Encashment of Leave and Gratuity

House Rent Allowance

Deduction of Health Insurance

Incentives (including Sales Commission)

Tax Deductions

Medical Allowance

Meal Allowance

Any other Special Allowances

Attendance and Overtime Payments

Calculation of the ESI

The ESI contribution rates are calculated based on wages paid.

The employee contribution is currently 0.75 per cent of wages paid/payable, whereas the employer contribution is 3.25 per cent of wages paid/payable.

Employer Contribution Employee Contribution

= Total ESI Contribution.

Let's imagine Mr A earns ₹ 16,000 per month working in a factory (Company).

This is how the contribution will look:

Employee Contribution

Employer Contribution

0.75 x 16,000 = ₹120

3.25 x 16000 = ₹520

Total

(120 + 520) = ₹640

Thus, a contribution of ₹ 640 will be paid in total. Employers are responsible for deducting and paying employee contributions.

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

The funds can be deposited online or at authorised SBI banks or other authorised branches.

Collection of ESIC

An employer is responsible for contributing to each employee and deducting employee contributions from paychecks.

In addition, the employer must pay payments to the Corporation within 15 days of the last day of the month for which contributions are due.

The Corporation has authorised a few SBI and other bank branches to collect payments on its behalf.

Benefit Period and Contribution Period

The notion of a contribution period protects the employee in the event that their wages exceed ₹ 21,000 per year.

Continuing with the previous scenario, suppose Mr A was receiving ₹ 16,000 per month until June 2021, and that his salary will grow to ₹ 22,000

The contribution period is from 1 April 2021 – 30 September 2021; therefore, the deduction will continue on the revised wage until September, and he will be eligible for the benefit until 30 June of the following year.

Name

Salary Revision

Contri-bution Period

Benefit Period

MR A

July 2021

1st April 2021 – 30th Sep 2021

1st Jan to Jun 2022

Mr B

November 2021

1st Oct to 31st March 2022

1st July to 31st Dec 2022

Similarly, an employee, Mr B, earns ₹ 20,000 until October 2021, and ₹ 22,000 beginning next month.

The deduction must continue until March 31, 2022, and he will be entitled to the benefit until December 31, 2022.

Consequently, both employee and employer must contribute to ESI, and the benefits assist the employee in adverse circumstances.

What are the benefits of ESIC membership?

Numerous benefits accompany enrollment in the Employees' State Insurance Scheme (ESIC). Here are a few instances:

  • Sickness benefits at a rate of 70% (in the form of pay) shall be paid for a maximum of 91 days per year for any recognized illness.
  • Medical Service cover for an employee and his/her dependent family
  • Women who are pregnant are entitled to maternity leave (paid leaves).
  • If an employee dies on the job, their dependents receive 90% of their monthly wage for the rest of their lives.
  • The same regulations apply in the event of a disabled employee.
  • Funeral expenses; 
  • medical expenses for the elderly.

Salary ESI Returns Registration and Filing

Employers who must register under the Employee State Insurance Act of 1948 (the "Act") must conduct the following actions:

  • An employer must retain all documents in the event that they are required.
  • An employer must then submit Form 1, which is available in PDF format on the ESIC website.
  • Note that ESIC will verify all information and provide a 17-digit unique number. This unique number is essential for all filings.

Documents Required for ESI Registration in Wages

The following documents are required to gain ESI membership in order to receive an ESI Salary:

  • Address proof of the business 
  • Business PAN card 
  • Details of all partners, directors, and shareholders 
  • A license under the Factories Act or Shop Establishment Act 
  • Details of all employees and their salary structure 
  • Bank details 
  • Documents such as partnership deed, articles of association, and memorandum of association in case of company.

How to Check the Status of an ESI Claim Online

Listed below are the ways to verify the status of an ESI claim online:

  • Launch the UMANG App or download it to your mobile device.
  • Enter the IP address or the ESIC Insurance Number, and then click "Get OTP."
  • Enter the OTP sent to the reference phone number and click the "Submit" button.
  • Select 'Claim Status' from the list of services.
  • If you have filed a claim, you will be able to view its status or utilise the advanced search to obtain additional information.

Consequences of Non-Payment or Late Payment of Employee Contributions

  • The employee contribution amount withheld from an employee's pay is considered to have been entrusted to the employer.
  • Consequently, the employer has a greater obligation to ensure that the contribution is deposited with ESI.
  • Under the ESI Act, nonpayment or late payment of an employee's wage-deducted contribution is a serious offence.
  • Under the ESI Act, nonpayment, late payment, and fabricating payments are punishable by up to two years in prison and a Rs 5,000 fine.

Consequences for Employers When Salary ESI is Delayed

For each day of delay or nonpayment, an employer shall be charged simple interest at a rate of 12% per annum.

FAQ - What is Salary in ESIC

What wages are covered by the ESI Act?

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

It encompasses any payment made to an employee during an authorised absence, strike, or lockout that is not illegal or a result of a layoff.

It also includes any further compensation received at intervals of no more than two months.

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

What is the required ESI contribution?

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

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

However, employers would contribute their proportional share for employees earning up to ₹ 176 daily.

What are the ESI benefits for which a claim can be made?

Contributions to ESI cover the following benefits:

  • Medical advantages
  • Sickness benefit 
  • Maternity benefit
  • Disablement benefit, including temporary disablement benefit and permanent disablement benefit 
  • Dependant's benefit
  • Funeral expenditures
What is disablement under ESI Act?

Disability is a condition caused by occupational harm.

Temporary disability occurs when an injury renders the insured temporarily unable to do his or her job and necessitates medical treatment.

When a disability lowers an employee's earning potential, it is considered a permanent partial disability.

Permanent total disability occurs when the insured is unable to perform any type of work due to their disability.

What is the method of ESI contribution payment?

After adequately registering all of its employees, the employer must file monthly contributions electronically through the ESIC portal.

The employer must keep track of the number of days paid to each employee.

In addition to the SBI, the ESIC has made it possible to pay ESI contributions online through the payment gateways of 58 banks.

The complete amount of all employees' contributions for each month is to be deposited in any SBI branch through the online generation of a challan through the ESIC portal using the employers' login.

Disclaimer: The information contained on this website is offered exclusively for learning purposes. No counsel relationship is formed when you access or utilise the site or the materials. The content on this website does not constitute legal or professional advice and should not be relied on for such purposes or used as a substitute for legal advice from a legal professional in your state.

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