ESI calculation and eligibility: rates, wage limit and examples
Employees' State Insurance gives workers on lower wages medical care and cash benefits, paid for by a small monthly contribution from both employee and employer. This guide covers which establishments and employees fall under ESIC, what counts as wages, how the 0.75% and 3.25% contributions are calculated and rounded, and when they must be paid.
Key points
- ESIC applies to notified factories and establishments with 10 or more employees (20 in some states).
- Employees earning up to ₹21,000 a month are covered (₹25,000 for persons with disability).
- The employee pays 0.75% and the employer 3.25% of gross wages, rounded up to the next rupee.
- Overtime is left out when checking the ₹21,000 limit but is included when calculating contributions.
- Employees with an average daily wage of ₹176 or less pay nothing; the employer still pays its 3.25%.
- Contributions are due by the 15th of the following month.
ESI is often treated as "the other deduction next to PF", but it works very differently. It is calculated on gross wages rather than basic pay, it has no cap on the wage used for contributions once someone is covered, and coverage is decided by six-month contribution periods rather than month by month.
Which establishments are covered
The Employees' State Insurance Act, 1948 applies, in areas where the scheme has been implemented, to:
- Non-seasonal factories employing 10 or more persons.
- Establishments notified by the state government, typically shops, hotels, restaurants, cinemas, road motor transport undertakings, newspaper establishments and private educational and medical institutions, employing 10 or more persons.
A few states still apply the threshold at 20 employees for some classes of establishment, so confirm what your state has notified. The headcount includes all employees, including those earning above the ESI wage limit and contract workers. Once covered, an establishment remains covered even if headcount later drops below the threshold.
Which employees are covered
Inside a covered establishment, an employee is covered if their wages are ₹21,000 a month or less. For persons with disability, the limit is ₹25,000. Covered employees are registered with ESIC and receive an insurance number (IP number); from then on they are called insured persons.
The limit is applied at the start of each contribution period (1 April and 1 October) or on joining. An employee who is covered at the start of a period and later gets a raise above ₹21,000 remains covered until that period ends. Our guide to ESI contribution periods explains this with a month-by-month timeline.
Contribution rates
Since 1 July 2019 the rates have been:
| Share | Rate | Paid by |
|---|---|---|
| Employee contribution | 0.75% of wages | Deducted from the employee's salary |
| Employer contribution | 3.25% of wages | Paid by the employer on top of salary |
| Total | 4% of wages |
Contributions are calculated on the wages actually paid for the month, so an employee who loses pay for absent days pays less that month. There is no upper cap on the wage used once an employee is covered: if a covered employee earns ₹23,000 in a month, contributions are on ₹23,000.
What counts as wages for ESI
The Act defines wages broadly: all remuneration paid or payable in cash under the terms of employment, at intervals of not more than two months. That is much wider than the basic + DA used for PF.
| Usually included | Usually excluded |
|---|---|
| Basic pay and DA | Employer's contribution to PF or pension |
| HRA, city compensatory and other regular allowances | Travelling allowance or the value of a travel concession |
| Overtime wages | Sums paid to cover special expenses caused by the nature of the job |
| Night shift and similar allowances | Gratuity paid on leaving |
| Incentives or production bonus paid monthly | Annual bonus or other payments made at intervals longer than two months |
| Wages for paid leave and holidays | Retrenchment compensation |
When a component is borderline, look at how often it is paid and whether it is reimbursement for an actual expense. A fixed monthly "conveyance allowance" paid to everyone is treated differently from reimbursement of actual travel bills.
How overtime is treated
Overtime is part of wages, so contributions are payable on it. However, ESIC has clarified that overtime is not counted when deciding whether an employee's wages are within the ₹21,000 limit. The coverage check uses wages without overtime; the contribution uses wages with it. This stops an employee going in and out of coverage because of a busy month.
The ₹176 daily wage exemption
Employees whose average daily wage is ₹176 or less are exempt from paying the employee's 0.75%. The employer must still pay its 3.25% on their wages, and the employee remains fully covered for benefits.
The average daily wage is the month's wages divided by the number of days for which wages were paid. Check it each month for piece-rated or daily-rated workers whose earnings vary.
Rounding contributions
ESI contributions are rounded up to the next higher rupee, not to the nearest rupee. ₹112.50 becomes ₹113 and ₹731.25 becomes ₹732. This is worked out separately for the employee share and the employer share of each employee, which is why a total can differ by a rupee from 4% of wages.
Worked examples
All examples assume a full month's pay and an employee who is not a person with disability unless stated.
| Case | Wages for limit check | Wages for contribution | Covered? | Employee 0.75% | Employer 3.25% | Total |
|---|---|---|---|---|---|---|
| ₹15,000 gross | 15,000 | 15,000 | Yes | 113 | 488 | 601 |
| ₹20,500 + ₹2,000 overtime | 20,500 | 22,500 | Yes | 169 | 732 | 901 |
| ₹24,000 gross | 24,000 | n/a | No | 0 | 0 | 0 |
| ₹24,000 gross, person with disability | 24,000 | 24,000 | Yes | 180 | 780 | 960 |
| ₹170 a day × 26 days | 4,420 | 4,420 | Yes (exempt share) | 0 | 144 | 144 |
Worked example: ₹15,000 gross
₹15,000 is within ₹21,000, so the employee is covered. Employee: 0.75% × ₹15,000 = ₹112.50, rounded up to ₹113. Employer: 3.25% × ₹15,000 = ₹487.50, rounded up to ₹488. Total deposited: ₹601.
Worked example: ₹20,500 plus ₹2,000 overtime
For the limit check, overtime is ignored: ₹20,500 is within ₹21,000, so the employee is covered. Contributions are on total wages of ₹22,500. Employee: 0.75% × ₹22,500 = ₹168.75, rounded up to ₹169. Employer: 3.25% × ₹22,500 = ₹731.25, rounded up to ₹732. Total: ₹901.
Worked example: ₹24,000 gross
₹24,000 is above ₹21,000, so an employee joining at this salary, or earning it at the start of a contribution period, is not covered and no ESI is deducted. If the employee is a person with disability, the ₹25,000 limit applies: employee 0.75% × ₹24,000 = ₹180, employer 3.25% × ₹24,000 = ₹780. If the employee was covered and crossed ₹21,000 during the current period, contributions continue on ₹24,000 until the period ends.
Worked example: daily wage below ₹176
A worker paid ₹170 a day for 26 days earns ₹4,420. The average daily wage of ₹170 is within ₹176, so no employee share is deducted. Employer: 3.25% × ₹4,420 = ₹143.65, rounded up to ₹144.
To try your own figures, use the free ESI calculator.
Due date and payment
Employee and employer contributions for a month are filed and paid on the ESIC portal by the 15th of the following month. For each insured person, the monthly contribution records the number of days for which wages were paid and the total wages, and a reason is needed for anyone reported with zero days, for example someone who left service.
Late payment attracts simple interest at 12% a year, and the employee share deducted from salary must never be held back. Keep wage registers, attendance and contribution records for each contribution period, since ESIC inspections look at them together.
What employees get in return
ESI contributions fund a set of benefits. In brief, and subject to ESIC's contribution conditions:
- Medical benefit for the insured person and family through ESI dispensaries and hospitals.
- Sickness benefit, a cash payment at 70% of wages for certified sickness, for up to 91 days in a year.
- Maternity benefit, full wages for up to 26 weeks.
- Disablement and dependants' benefits for employment injury, as periodic payments.
- Funeral expenses and unemployment allowance schemes for insured persons who lose their job, subject to conditions.
Eligibility for cash benefits depends on contributions paid in the linked contribution period, which is why the period structure matters. Rates and conditions are set by ESIC and can change, so check the current ESIC notifications.
Calculating ESI in payroll software
For a payroll team, the hard parts are applying the limit check without overtime, keeping employees covered to the end of a period and rounding correctly for every line. Swastik Payroll's ESI management works out the 0.75% employee and 3.25% employer contributions from each month's gross wages, stores the ESIC IP number on each employee profile, and exports an ESIC contribution sheet with IP number, days worked and wages. Filing and payment still happen on the ESIC portal.
Frequently asked questions
Is ESI calculated on basic salary or gross salary?
On gross wages: basic, DA, HRA, regular allowances, overtime and other cash remuneration paid at intervals of up to two months. Employer PF contribution, travelling allowance, gratuity and annual bonus are excluded.
What if an employee's salary goes above ₹21,000?
They stay covered until the end of the current contribution period (30 September or 31 March) and contributions continue on their actual wages. From the next period, they are out of coverage if wages are still above the limit.
Can an employee above ₹21,000 choose to stay in ESI?
No. Coverage is decided by the wage limit, not by choice. The only higher limit is ₹25,000 for persons with disability.
Is there a maximum ESI deduction?
There is no fixed rupee cap. In practice the deduction is limited because only employees within the wage limit at the start of a period are covered, but a covered employee's contribution is on their actual wages, including overtime.
This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.