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written by Khatabook | November 23, 2021

ESI Calculation - How is ESI Computed?

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So, what is ESI in salary? ESI full form in salary is Employee State Insurance (ESI). It is a contributory fund that receives payments from both the employer and the employee, allowing Indian employees to participate in a self-funded healthcare insurance fund. The Employee State Insurance Corporation, a government entity, administers the plan controlled by the ESI Act of 1948. Employees' Social Insurance (ESI) is the world's biggest integrated need-based social insurance program. It safeguards employees in the case of unforeseen and unpleasant circumstances. The program includes both monetary and medical benefits.

ESI applies to all non-seasonal factories with ten or more employees. ESI is available to all enterprises protected by the Factory Act, as well as Shops and Establishments. This Act applies to units with ten or more employees or those that are located in scheme-implemented regions. Therefore, let's delve into the different aspects of ESI in salary.

Contribution of ESI in salary

The ESI scheme is a contributory scheme; therefore, all employees in the factories or establishments to which the Act applies must be insured in accordance with the Act's provisions. In the case of an employee, the contribution payable to the Corporation will be made up of the employer's contribution and the employee's contribution at a certain rate.

The tariffs are updated regularly. Currently, the ESI contribution salary limit is as follows -

  • The employee contribution rate is 0.75% of earnings (effective July 1, 2019)
  • The employer contribution rate is 3.25% of wages paid/payable for employees in each wage period.
  • Employees who earn a daily average income of up to Rs.137/- are free from contributing. Employers, on the other hand, will contribute their fair share in the case of these workers.

Applicability of ESI in salary

For PAN India, the minimum staff strength necessary for ESI registration for manufacturers is ten or more. Depending on the state, the requirement for businesses is 10 or 20. The following table shows which state requires a minimum of 10 and requires a minimum of 20 employees.

States in which a minimum of 20 employees are required to be registered for establishment

States in which a minimum of 10 employees are required to be registered for establishment

Andaman and Nicobar

Andhra Pradesh

Arunachal Pradesh

Bihar

Assam

Chattisgarh

Chandigarh

Delhi

Dadra and Nagar Haveli

Gujarat

Daman and Diu

Jharkhand

Goa

Haryana

Himachal Pradesh

Kerala

Jammu and Kashmir

Karnataka

Lakshadweep

Orissa

Sikkim

Pondicherry

Maharashtra

Punjab

Manipur

Rajasthan

Meghalaya 

Telangana

Mizoram

Tripura

Nagaland

West Bengal

Uttar Pradesh

Uttarakhand

Madhya Pradesh

-

Tamil Nadu

-

 Also Read: Salary Calculator 2020-21 - Take Home Salary Calculator India

ESI calculation on salary 

The ESI calculation on salary is based on the wages earned. Employee contributions are now 0.75% of earnings paid/payable, while employer contributions are 3.25% of wages paid/payable.

We can understand it with an example - 

Consider Mr Harsh, who works at a factory and earns Rs. 10,000 per month.

The following will be the ESI in salary slip:

  • Employee contribution = 0.75 percent x 10,000 = 75
  • Employer contribution = 3.25 percent x 10,000 = 325

As a result, a total donation of Rs. 400 will be made. The employer is responsible for deducting and paying the contribution. Within 15 days after the end of the calendar month in which the deduction is made, the employer must deposit the money. Deposits can be made online or at authorised SBI approved banks or other designated branches.

Contribution Collection of ESI in salary

An employer is responsible for paying their contribution for each employee and deducting employee contributions from wages. They must make these contributions to the Corporation at the above-stated rates within 15 days of the last day of the calendar month in which the contributions are due. The Corporation has allowed selected State Bank of India and other institutions to accept payments on its behalf.

Periods of Contribution and Benefits of ESI Salary

As shown below, there are two contribution periods, each lasting six months, and two benefit periods, each lasting six months.

Contribution Period

Cash benefit period

1st April to 30th September

1st January of the following year to 30th June

1st October to 31st March of the year following

1st July to 31st December

What is an Allowance?

An allowance is a monetary advantage provided by the employer to the employee in addition to their standard wage. These advantages are offered to compensate for any costs that may be required to complete the service. Salary allowances are divided into three groups: taxable, non-taxable, and partially taxable allowances.

Wages as per the ESI Act

Employee and employer contributions are based on the wages given to the employees. The following are some of the salary components for ESI calculation specifying its inclusions and exclusions:

Inclusions

Exclusions

Basic pay

Entertainment Allowance

House rent allowance

Encashment of leave and gratuity

Dearness allowance

Deduction of health insurance

City compensatory allowance

Retrenchment compensation

Incentives ( including sales commission)

Tax deductions

Meal   Allowance

-

Medical  Allowance

-

Any other special   Allowances

-

Attendance and overtime payments

-

What are the advantages of being an ESIC member?

The advantages of signing up for this Employees' State Insurance Scheme (ESIC) are numerous. Here are a few examples:

  • In the event of any certified illness lasting for a maximum of 91 days in any year, sickness benefits at a rate of 70% (in the form of pay) will be paid.
  • Medical coverage for an employee and his family
  • Pregnant women receive a maternity benefit (paid leaves)
  • If an employee dies while on the job, 90% of their pay is paid to their dependents every month after the person's death.
  • In the event of an employee's disability, the same rules apply.
  • Expenses for the funeral
  • Medical costs for the elderly

Returns Registration and Filing of ESI in salary

Employers who are required to register under the Employee State Insurance Act of 1948 ("Act") must take the following steps:

  •  An employer must maintain all papers on hand in case they are needed.
  •  After that, an employer must f ile Form 1, which is available on the ESIC website in PDF format.

Note: ESIC will double-check all of the information and assign a 17-digit unique number. All filings re quire this one-of-a-kind number.

Documents required for registration of ESI in salary

The following documents are required for obtaining registration of ESI Member to get ESI salary:

  • Address proof of the business
  • PAN card of the business
  • Details of all partners, directors, and shareholders
  •  A license under Factories act or shop establishment act
  • Details of all employees and their salary structure
  • Bank details
  • Documents such as partnership deed, Articles of association, Memorandum in case of company.

The employer can file returns online when the establishment has been successfully registered. The employer must follow the steps outlined below to file ESI returns online:

  1. Once you've registered, you'll have access to your login credentials. The same will be necessary for filing taxes online.
  2. Once the login credentials are obtained, the employer must visit the official website (https://www.esic.in/) to access the details.
  3. They may log in with the credentials and choose from a list of options. Modify employee information, report an accident, etc.
  4. Before filing the return, the employer must make sure that all of the employee information is current.
  5. After that, the employer must fill out the bank information and submit it to file the taxes.
  6. The employer may then go to the ‘List of Actions' and choose ‘Generate Challan.'
  7. The challan must be downloaded and saved for future inspections and reference.

ESI Salary Reports submitted by Employer

1 Accident Report: A Notice of Accident in Form -12 should be submitted online within 24 hours to the relevant Branch Office.

2 Abstention verification report: It must be provided to the Branch Office whenever the Branch Manager requests it in relation to any IP.

3. Records of the primary employer, such as attendance, wages, and books of accounts and records of the immediate employer, as required by the Labour Laws.

ESI Returns

After the registration is finalised, how many returns are filed each year? ESI Returns must be filed twice a year after registration. The following papers must be included with the returns:

  • Employees' Attendance Register, Form 6- Register of Wages and track any accidents on the business's premises.
  • Returns and challans are due every month.

Consequences of Employee Contribution Non-Payment or Late Payment

  • The employer is regarded to have been entrusted with the amount withdrawn from an employee's pay as an employee contribution. As a result, the employer bears a greater burden of ensuring that the contribution is deposited with ESI in salary.
  • Non-payment or late payment of the Employee's contribution collected from the employee's wages is a punishable offence under ESI Act.
  • Non-payments, late payments, or fabricating payments are punishable under the ESI Act by up to two years in jail and a fine of Rs 5,000.

Consequence for Employer when ESI in Salary is Delayed

If an employer fails to contribute within the time limit established in the rule, they will be subject to simple interest at the rate of 12% per year for each day of delay or default in payment.

Also Read: All About Special Allowance - its Taxation & Calculation in India

Conclusion

Employee State Insurance or ESI is a fund in which contribu tions are made by both the employer and employees. It is a scheme that helps to protect the employees in the event of uncertain and unfortunate events as it provides both cash benefits as well as healthcare. We hope the article has given you the required information regarding ESI in salary, ESI calculation in Salary, the applicability of ESI, benefits of being an ESIC member, and the return filing for the ESI Member and the consequences of non-payment or late pay ment of the contribution.

For regular updates about the ESI, download the Khatabook app.

FAQs

Q: What will be the consequences of non-payment or delayed payment on the part of the employee?

Ans:

Non-payment or late payments are punishable offences under the ESI Act and can lead to up to two years in jail and a fine up to Rs 5,000.

Q: What is the penalty for the delayed payment to the fund by the Employer?

Ans:

If an employer fails to contribute within the time limit established in the rule, they will be subject to simple interest at the rate of 12% per year for each day of delay or default in payment.

Q: What is the ESI full form in salary?

Ans:

The ESI in salary stands for Employee State Insurance.

Q: What is the minimum number of employees for which an ESI Registration is required?

Ans:

In some states, a minimum of 10 employees and 20 employees should be there for ESI Registration. The complete list has been given in the article above. 

Q: How many ESI returns are filed in a year?

Ans:

Two returns of ESI are filed every year.

Q: How is ESI in salary deducted on a monthly basis of an employee?

Ans:

Employees have 0.75% of their gross salary removed per month, while employers contribute 3.25% of the employee's gross pay per month to ESI.

Q: Who is eligible for the ESI scheme?

Ans:

ESI applies to all workers whose monthly remuneration, excluding overtime, bonuses, and leave encashment, does not exceed Rs.21,000 per month. In the case of a person with a disability, it is Rs. 25000.

Q: What is the age limit for applying for ESI?

Ans:

Candidates applying for ESI should be between 18-27 years of age. 

Q: What is the limit of ESI in salary?

Ans:

ESI applies to all workers whose monthly remuneration, excluding overtime, bonuses, and leave encashment, does not exceed Rs 21,000 per month. In the case of a person with a disability, it is Rs 25000.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.