Understanding ESI Contribution and Calculation in 2024

Introduction:

The Employee State Insurance (ESI) is an essential social security and health insurance scheme in India aimed at providing financial support for events such as employee illnesses, maternity, workplace accidents, and medical expenses for family members. Enterprises, particularly year-round factories with a minimum of 10 employees (or 20 in specific regions) and a salary limit of INR 21,000, must register for ESI within 15 days of fulfilling eligibility standards. This article explores the wage components pertinent to ESI under the ESI Act and outlines the ESI contribution calculation method.

According to the ESI Act, contributions include parts from the employer and employee, with predetermined rates subject to periodic review. As of 2024, the employer's contribution rate is set at 3.25% of employee wages, while the employee's contribution stands at 0.75%. Employees earning INR 137 or less per day are exempt from contributions, although employers remain obliged to contribute.

The formula for ESI calculation is:

Total ESI Contribution = Employer's Contribution + Employee's Contribution

For example, if Mr. Anuj earns INR 15,000 monthly at an ESI-covered company, his ESI contributions would be:

• Employer's Contribution = INR 15,000 * 3.25% = INR 487.50
• Employee's Contribution = INR 15,000 * 0.75% = INR 112.50
• Total ESI Contribution = INR 487.50 + INR 112.50 = INR 600

Wage Components under ESI Act

Not all employee payments are considered for ESI contribution calculations. The ESI Act specifies inclusions and exclusions:

Inclusions:

• Suspension/Subsistence Allowance
• Overtime Allowance
• Wages during Layoff
• House Rent Allowance
• Shift/Heat/Gas/Dust Allowances
• Conveyance/Medical/Newspaper/Education Allowances
• Driver's Allowance (under specific conditions)
• Food/Milk/Tiffin Allowance (under specific conditions)
• Wages/Dearness Allowance for Unsubstituted Holidays
• Interim Relief
• Attendance Bonus
• Service Contract Expenditure (relevant amount)

Exclusions:

• Washing Allowance
• Annual/Incentive/Production Bonuses
• Ex-Gratia Payments
• Annual Commission
• Service Charges
• Gazetted Allowance
• Travel Exgratia During Strikes
• Savings Schemes
• External Hamals/Coolies (outside workspace)
• Machine Servicing Costs
• Dealers/Agents Commissions
• Service Contracts (if external)
• Payment for Unused Leave at Discharge
• Advertising Commissions (to non-regular employees)
• Fuel/Petrol Allowance
• Entertainment Allowance
• Shoe Allowance
• Gratuity on Discharge/Retirement
• Leave Encashment Payment

Collection of ESI Contribution

Employers are tasked with paying their contributions and deducting employee portions from wages, which must be cleared with the Corporation within 15 days after the month's end. Certain banks, chiefly State Bank of India branches, are authorized to accept these payments on the Corporation's behalf.

Contribution and Benefit Periods:

ESI operates on dual contribution periods each year, each followed by a benefit period lasting six months:

• The contribution period from 1st April to 30th September aligns with a benefit period from 1st January to 30th June the following year.
• Contributions from 1st October to 31st March accommodate a benefit period from 1st July to 31st December.

This layout benefits employees whose earnings surpass the limit within the period. For instance, if an employee's wages rose from INR 20,000 to INR 23,000 in June 2022, the ESI contributions based on INR 23,000 persist until 30th September 2022. They become ineligible due to exceeding the INR 21,000 threshold but remain eligible for benefits until 30th June 2023.