ESI Contribution in India: Eligibility, Calculation & Rates

ESIC or Employee State Insurance Contribution is a crucial component of the employee salary structure in India. Hence, it is essential to understand what it is, how it is calculated and what benefits would you get for being an active contributor to the ESI.

In this blog, we will answer some of the common queries employees and HR have about the Employee State Insurance Scheme, its contributions by the employee and the employee, and other aspects related to it.

What is the ESI Contribution of the employees?

The Employees State Insurance Scheme (ESI) was set up per the ESI Act of 1948. It was set up to support the employees by providing financial help for medical reasons.

It is a social insurance scheme by the Government of India and hence, is one of the largest schemes of such kind in the world.

A fixed percentage of the employee’s gross salary is deducted from their monthly wages and deposited with the Employee State Insurance Corporation (ESIC).

The employer also submits a certain percentage of the employee’s gross salary to contribute to that employee’s ESI.

When is ESI applicable?

ESI applies to an employee if the following conditions are satisfied:

• The company in which they are working is defined per the provisions in the ESI Act of 1948
• The number of employees is greater than or equal to 10/20 (depending on the state)
• The wage of the employee is not more than Rs. 21,000.

Under Section 2A of the Act and Regulation 10-B, it is the employer’s legal duty to register their business under the ESI Act within 15 days of its applicability (as per the conditions mentioned above).

The employer should also register every eligible employee under the Employees State Insurance Scheme. The responsibility of deducting and paying their contributions on time also falls with the employer.

Advantages of being an ESIC Member

There are various advantages of being an Employee State Insurance (ESI) member. Following are some of the most common pros:

• Medical coverage for the employee and their immediate family members.
• Medical benefits for the employee include up to 70% of their pay if diagnosed with any disease lasting more than 91 days a year.
• Monthly cash allowance for a maximum duration of 2 years in case of involuntary job loss.
• Paid maternity leaves for pregnant women.
• Medical expenses for senior employees.
• In case of death on the job or physical disability, monthly payments of up to 70% of their pay to their dependents for the rest of their lives.
• Funeral expenses.

Inclusions and Exclusion under the ESI Act

The way ESI wages are defined changed materially in 2026. Under the ESI Act of 1948, contributions were calculated on gross wages, and employers had wide room to decide which pay components counted.

The Code on Social Security, 2020 replaced this with a standardised definition of wages under Section 2(88), enforced by ESIC through notifications issued on 10 and 11 December 2025, with effect from 21 November 2025.

Under this framework, wages for ESI purposes must include at least Basic Pay and Dearness Allowance, and these two components together must account for a minimum of 50% of an employee’s total remuneration.

Components always included:

• Basic Pay
• Dearness Allowance
• Retaining Allowance
• Any allowance that pushes total exclusions beyond the 50% threshold.

Components typically excluded, within the 50% limit:

• House Rent Allowance
• Conveyance Allowance
• Overtime Payments
• Bonus and Commissions
• Leave Encashment
• Statutory Bonus and Gratuity.

Employers should note that as of 2026, this rule is being applied by ESIC in practice, even though the underlying provision on contribution payment under the new Code has not yet been formally brought into force through Section 29. HR and payroll teams should treat the 50% rule as active and reflect it in salary structuring.

Documents required for ESI Registration

There are various documents required for ESI registration. As it is a government-mandated scheme, it is necessary to submit the documents mentioned below:

• Company PAN Card
• Company Address Proof
• Company License
• Details of all Employees
• Salary Structure of all Employees
• Bank Details
• Details of Partners, Directors & Shareholders
• Other documents per the scenario include Partnership Deed, Articles of Association, Memorandum, etc.

A company can file the ESI returns only after registering the organization. Once they have completed the registration, they must file ESI twice a year using the online portal.

The government has made it easier to file the ESI returns as you can easily do it from their official website.

Contribution and the benefit periods for ESI

The term ‘contribution period’ refers to when the employee’s salary is deducted as a contribution or premium towards ESI.

Similarly, the term ‘benefits period’ refers to when the employee could enjoy the benefits provided by the ESI Scheme.

Since ESI is filed twice a year, the contribution period is defined from 1st April to 30th September. The next period will be from 1st October to 31st March of the following year.

The corresponding benefit periods would be from 1st January to 30th June and 1st July to 31st December.

Also Read: What are the Salary Components in India?

Relevance of ESI Contribution

There are multiple benefits that the employees enjoy from being an Employees State Insurance member, such as:

Medical Benefits

The employee under the ESI Scheme is automatically insured right from the moment they start employment.

The employee and their immediate family can receive medical aid under this scheme. Additionally, there is no limit on the amount the employee can spend on their medical treatments.

Maternity Benefits

Maternity benefits are provided for 26 weeks with an extension of 1 month, based on the doctor’s advice. The financial benefits provided correspond to the employee’s actual salary.

They would be eligible for the same if they paid their contribution for 70 days in the preceding two contribution periods.

Sickness Benefits

The insured employees are entitled to sickness benefits for a maximum of 91 days per year. They will be provided 70% of their salaries in such circumstances.

They should have contributed to ESI for a minimum of 78 days in 6 months to receive these benefits.

Disability Benefits

The disability benefits are divided into permanent and temporary disability benefits, based on the kind of disability that the employee has:

Permanent Disability Benefits

The employee who is disabled permanently will be provided 90% of their salary monthly.

The amount the employee receives depends on the extent of the loss of their earning capacity, and it needs to be certified by a registered medical organization.

Temporary Disability Benefits

The temporary disability benefits provide the employee with monthly payments that are 90% of their salary until they have the disability.

In these cases, the employee is covered from the first day of their employment and is not required to complete any number of days under the ESI Scheme or have contributed to it.

Dependency Benefits

Dependency benefits are the benefits provided to the dependents of a deceased employee whose death occurred due to an occupational hazard. It is supplied at 90% of the deceased individual’s salary.

How is the ESI Contribution calculated?

The contribution rates themselves have not changed. Both employer and employee continue to contribute a fixed percentage of the employee’s ESI wages:

Employee contribution = 0.75% of ESI wages

Employer contribution = 3.25% of ESI wages.

What has changed is the base on which this percentage is applied. Contributions are no longer calculated on gross salary as defined loosely under the old ESI Act. They are calculated on wages as redefined under Section 2(88) of the Code on Social Security, 2020, after applying the 50% rule described above.

For example, consider an employee with a CTC of ₹20,000 per month, structured as Basic ₹7,000 and Allowances ₹13,000. Since allowances exceed 50% of total pay, ₹6,000 is added back to Basic, bringing ESI wages to ₹13,000. On this basis, the employee contributes ₹97.50 (0.75%), and the employer contributes ₹422.50 (3.25%).

What is the penalty for late payment of ESI contribution?

Since the employer is in-charge of depositing the Employee State Insurance (ESI) contribution with the Employees State Insurance Corporation, they are charged simple interest at the rate of 12% per annum for each day if there is any delay in submitting the contribution.

If there are multiple non-payments, delays or fraud activities related to ESI and its payment from a company, the guilty parties can be imprisoned for up to 2 years and fined ₹5,000. The Employees State Insurance Corporation can also disallow the ESI contributions and restrict the employees from receiving any benefits.

How to claim the benefits of ESI?

Employees or their dependents who wish to claim the ESI benefits must file Form 9. ESI benefits can be claimed in case of sickness, temporary or permanent disability and maternity. There are two kinds of ESI benefits that the employees can avail:

Cash

Under this benefit, the employee is compensated in cash for the amount spent on sickness treatments, disability, maternity, funeral, etc.

Medical

Under this benefit, the employee is provided medical care with the help of ESI-authorized hospitals. The employee or their dependents can avail the benefits as per the provisions of The ESIC Act, 1948

How to check the status of claims under ESI?

You can quickly check the status of an ESI Claim online using the UMANG mobile app. The steps for checking it are:

• Open the app and go to the ESIC section once logged in.
• Enter the ESIC Insurance Number and click on the ‘Get OTP’ button.
• Enter the OTP you receive on the reference phone number for the ESIC Insurance Number you entered and click on the ‘Submit’ button.
• Select the ‘Services’ section and the ‘Claim Status’ option.
• You will be able to see the status of the claims, and you can use the advanced search option to search and find further details.

Conclusion

ESI contribution is a statutory requirement by the Indian government to benefit the employees working in India.

It helps them in times of crisis and ensures that their dependents are not burdened by them, even if they are disabled due to occupational hazards.

Hence, it is essential to become a member of ESIC and contribute to it to uplift the employees and provide them with the required medical and cash benefits.