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2020-03-17 09:42:00Payroll & BenefitsEnglishESI Scheme of India is a social security scheme designed to provide protection to employees against the events of sickness, maternity,...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2020/03/ESI-Scheme-Meaning-Benefits-and-Registration.jpghttps://quickbooks.intuit.com/in/resources/payroll-benefits/esi-scheme/ESI Scheme: Meaning, Benefits and Registration

ESI Scheme: Meaning, Benefits and Registration

7 min read

Employees State Insurance Corporation (ESIC) is the statutory body corporate that administers Employees’ State Insurance Scheme (ESI).

ESI scheme is basically designed to provide medical and financial assistance to the employees and their families. Such assistance is given during the period of inability of the employee to work due to sickness, maternity or employment injury.

In this article you will learn about the ESI scheme, its key benefits and provisions.

What is ESI Scheme?

Employees’ State Insurance (ESI) Scheme of India is a social security scheme which is encompassed in the Employees’ State Insurance Act, 1948.

This scheme is designed to provide protection to employees, as defined in the Employees’ State Insurance Act, against the events of sickness, maternity, disablement and death on account of employment injury and extend medical care to persons insured under the Act and their families.

In other words, the ESI Scheme helps employees registered under the ESI Act, 1948 during the time of their inability to work due to sickness, employment injury etc.

This help is extended by providing such employees financial assistance. Such assistance makes up for the loss of salary for their incapacity to work and provide medical care to them as well as their family members.

Furthermore, it is a self financing scheme in which funds are provided by the contributions made by the employers as well as the employees. Such contributions are made on a monthly basis at a fixed percentage of the wages paid to such employees.

Applicability of ESI Scheme

As per section 2(12) of the ESI act, all factories where 10 or more persons are employed must be registered under the ESI act. In other words, the ESI scheme applies to factories that employ 10 or more persons.

Furthermore, the ESI scheme applies to the following establishments, which employ 10 or more persons. These include:

  • Shops
  • Hotels or restaurants not engaged in any manufacturing activity, but are engaged only in sales
  • Cinemas which also include preview theaters
  • Road motor transport establishments
  • Newspaper establishments (that is not covered as factory under section 2(12) of the ESI act)
  • Private educational institutions (those run by individuals, trustees, societies or other organizations) and Medical Institutions (including Corporate, Joint Sector, trust, charitable, and private ownership hospitals, nursing homes, diagnostic centers, pathological labs)

Thus, the total number of employees needed for a factory to be registered under ESI Act is 10 for factories all over India. However, the number of employees for an establishment to be registered in India are 10 or 20 as per the station.

The minimum requirement of employees for an establishment to be covered by the ESI act are as follows:

S.No.Minimum Employees to be RegisteredState
1.Himachal Pradesh20
2.Jammu & Kashmir20
3.Jharkhand10
4.Kerala10
5.Madhya Pradesh20
6.Maharashtra20
7.Manipur20
8.Meghalaya20
9.Mizoram20
10.Nagaland20
11.Orissa10
12.Pondicherry10
13.Punjab10
14.Rajasthan10
15.Sikkim20
16.Tamil Nadu20
17.Tripura10
18.Uttar Pradesh20
19.Delhi10
20.Karnataka10
21.West Bengal10
22.Andhra Pradesh10
23.Arunachal Pradesh20
24.Assam20
25.Bihar10
26.Chhattisgarh10
27.Goa20
28.Gujrat10
29.Haryana10
30.Uttarakhand10
31.Chandigarh20
32.Daman and Diu20
33.Dadra and Nagar Haveli20
34.Andaman and Nicobar20
35.Lakshadweep20
36.Outside India20

Is it Necessary for the Employers to Register Under the ESI Act?

Yes, all the factories or establishments having 10 or more persons employed are mandatorily required to register under the ESI Act, 1948. Such employers must get themselves registered within 15 days from the date ESI Scheme becomes applicable to them.

Can a Factory/Establishment Once Covered Under the ESI Scheme Choose Not be Covered If the Number of its Employees Reduce Below the Prescribed Limit?

Once a factory or establishment comes under the purview of the ESI Act, it continues to be covered under the ESI act. This is irrespective of the fact that:

  • the number of persons or employees, entitled to be covered under the ESI act, employed by such a factory/establishment falls below the prescribed limit at any time or
  • there is a change in the manufacturing activity of such a factory/establishment

Wage Limit for ESI Scheme

The employees, whose salary does not exceed Rs. 21,000, are entitled to be covered under the ESI Act, 1948.

In other words, employees of factories/establishments with 10 or more persons drawing wages up to Rs. 21,000 per month are entitled to receive the health benefits under the ESI Act.

Thus, if employees’ wages fall within this wage limit, deduction at a fixed percentage of their wages would be made as part of their contribution towards the ESI Scheme on a monthly basis.

Furthermore, there are employees who are exempted from making such a contribution towards the ESI Scheme out of the wages paid to them by the employer.

These include employees who receive a daily average wage of Rs. 137. However, the employer’s contribution is paid on such wages.

Can an Employee Be Taken as Not Covered Under the ESI Act, if his/her Wages Exceeds Rs. 21,000?

The human resource managing payroll often finds difficulty during times when the employee salaries change. This is specifically the case when the salary of the employee covered under the ESI Scheme exceeds the wage limit of Rs. 21,000 for the ESI applicability.

The ESI Scheme includes the concept of ‘contribution periods’ to avoid such challenges. Therefore, as per the ESI Act, the employees must continue to make contributions to the ESI scheme till the end of the contribution period , even if their salary exceeds the wage limit of Rs. 21,000.

In other words, if the salary of an employee covered under ESI scheme exceeds Rs. 21,000 after the commencement of the contribution period, such an employee continues pay his contribution towards ESI till the end of the contribution period.

What are Contribution Periods and Benefit Periods Under the ESI Act?

There are two contribution periods of six months and two corresponding benefit periods also of six months to avoid the above mentioned challenge under the ESI Scheme. These are as follows:

Contribution PeriodCorresponding Cash Benefit Period
1st April – 30th September1st January of the following year to 30th June
1st October – 30th March1st July of the following year to 31st Dec

For instance, the salary of an employee, covered under ESI scheme, increases from Rs. 19,000 to Rs. 23,000 from July, 2019. Now, as per the provisions of the ESI Scheme, such an employee would continue to pay his share of contribution towards the ESI Scheme till 30th September, 2019.

Thus, after 30th September, 2019 (i.e. end of the 1st contribution period), the employee would not be required to pay any contribution if his salary is more than the ESI limit.

However, the employee continues to be covered under the ESI scheme till 30th June of the following year (that is the end of the 1st corresponding cash benefit period).

ESI Contribution 2019 – 2020

As mentioned above, the ESI scheme is contributory in nature. Thus, the contribution to be paid to the ESIC with regards to an employee includes:

  • Employer’s Contribution and
  • the Employee’s Contribution

at a specified rate of wages paid to employees by the employer. As per the press note released on June, 13, 2019, the government of India reduced the rate of contribution under the ESI act. These rates are effective from July 2, 2019. Accordingly:

Employer’s Contribution (%)Employee’s Contribution (%)
PreviousRevisedPreviousRevised
4.75%3.25%1.75%0.75%

ESI Benefits to Employees

The Insured Person (IP) under the ESI Act, 1948 is entitled to receive a number of benefits under the ESI act. These benefits are as follows:

S.No.Name of the BenefitsConditions for ContributionTime Period of BenefitRate or Type of Benefit
1.The Medical BenefitIndividual must be an insured person under the ESI Act. Insured persons or families, thus, get entitled to benefits under ESI scheme from the date they enter into insurable employmentFrom the day of entering into the insurable employment to till date in the insurable employment and during the corresponding cash benefit periodReasonable medical care, comprehensive medical care and clinical investigation for insured person and his family members
1(a)Medical care provided to retired Insured Persons under rule 60An insured person who no longer is in the insurable employment due to permanent disablement as a result of employment injury on the payment of Rs. 120 for self and spouseGiven on yearly basisMedical facility for primary and secondary care (excluding SST) within ESI medical institutions to Insured Person and his spouse till the date of superannuation
1(b)The Medical care provided to retired Insured Persons under rule 61An insured person who has attained the age of superannuation, retires under Voluntary Retirement Scheme or takes premature retirement longer is in the insurable employment due to permanent disablement as a result of employment injury on the payment of Rs. 120 for self and spouse
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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