This blog contains everything you need to know about ESI deduction in India and how to calculate ESI contribution from your salary.

What is ESI calculation?

Employees’ state insurance (ESI) is a beneficial scheme for employees in India during their health related problems. The ESI employee contribution, manged by ESIC, requires monthly deduction from employee and employer account as ESI contribution.

As per ESIC rules, ESI deduction is applicable for employees at organisation with workforce strength more than 10 pax. Conditions that employees are full time and not contractors.

Also read – What is CTC in salary? Learn HOW to calculate CTC

The ESI contribution is a type of social security of state employees. The ESIC deduction and ESIC calculation depend upon the states of India. The regulations see a change with changing states. Hence, the term – ‘State insurance’.

This health securing scheme and fund is collected through monthly ESI contribution of employees and their employer. ESI calculation 2020 says that ESI funding is applicable to employees with gross earning less than or equal to 21,000 rupees per month.

How is ESI calculation done?

Calculating important deductions and payroll amendments is very important for effective workforce management and keeping penalties at bay. ESI calculation may not be so easy with any online payroll solution.

Major parameters that affect ESI calculation of employee include-

  • Gross pay
  • DA (Dearness Allowance)
  • Employment state
  • City compensatory allowance

A dedicated HRMS solution can make ESI calculation and compliance management easier for HR department and payroll department. Tracking payroll parameters and amendments made easy!

ESI contribution goes like this-

Employee’s contribution – 0.75 of the gross salary of the employee

Employer’s contribution – 3.25 of the gross salary of the employee

How to calculate ESI with an example:

Let’s understand ESI calculation with an example to make it clear-

Suppose the Gross Salary of an employee is INR 18,000 per month. Then the employee’s share of contribution would be: 0.75/100 * 18,000 = INR 135/ month. And the employer’s share of contribution would be: 3.25/100 * 18,000 = INR 585/ month

Hence, the total ESI contribution per month would become 135 + 585 = INR 720 for the employee.

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