ESI Calculation Formula, Percentage, and Contribution Rate Guide

ESI Calculation Formula, Percentage, and Contribution Rate Explained

Updated on 29 Nov, 2024

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ESI is self-contributing social security and health insurance scheme. The full form of ESI is Employee State Insurance. The scheme offers financial assistance to an employee during sickness, maternity and employment injury. Furthermore, it also covers for medical expenses of the employee’s family members. Establishments or non-seasonal factories with a total number of employees of more than 10 (in some states, 20 employees) and a maximum salary of INR 21,000 should register with ESI. Furthermore, the entity has to register within 15 days from the date of its applicability. This article covers the different wage inclusions and exclusions per the ESI Act and ESI Calculation in detail.

Employee State Insurance Corporation Site

ESI Contribution

ESI contribution in respect of an employee comprises both the employer’s contribution and the employee’s contribution. The contribution rates are fixed and are revised from time to time. The latest Employer’s ESI contribution rate in 2024 is 3.25% of the wages payable to the employee. While the employee’s ESI contribution percentage 2024 is at 0.75% of the wage. Furthermore, in case the daily average wage of an employee is up to INR 137, they are exempt from the contribution payment. However, employers have to pay their contribution to such employees.

How to Calculate ESI with Example?

The ESI contributions are based on the wages paid to the employees. The employer and employee ESI contributions are as follows:

ESI Employer’s Contribution Rate: 3.25% of the payable wages
ESI Employees Contribution Rate: 0.75% of the payable wages

ESI Calculation Formula

Total ESI Contribution = Employer’s Contribution + Employees Contribution

How to Calculate ESI for Rs. 15000 Salary

Let’s understand the ESI contribution calculation with an example. Let’s Mr Anuj works in an establishment that qualifies under the ESI Act. The monthly wage for Mr Anuj is INR 15,000. The contribution towards the Employee State Insurance Scheme is as follows:

Employer Contribution = INR 15,000 * 3.25% = INR 487.50

Employee Contribution = INR 15,000 * 0.75% = INR 112.50

Total ESI Contribution = 487.5 + 112.5 = INR 600

Wages according to ESI Act

Not all allowances, bonuses, and payments made to employees become part of their wages. Following is the list of inclusions and exclusions under the wage component as per the ESI Act:

Inclusions

The following allowances, bonuses and payments are part of wages for computing the ESI contribution:

Suspension Allowance or Subsistence Allowance
Overtime Allowance
Wages Paid During Layoff
House Rent Allowance
Night Shift, Heat, Gas and Dust Allowance
Conveyance Allowance
Medical Allowance
Newspaper Allowance
Education Allowance
Drivers Allowance: Under certain conditions
Food/Milk/Tiffin/Lunch Allowance: It will not be treated as wage under certain conditions.
Wages and Dearness Allowance for Unsubstituted Holidays
Interim Relief
Attendance Bonus
Expenditure on Annual/ Periodical Services Contract: Contribution is payable only on the amount paid for annual or periodical service contracts.

Exclusions

The following allowances, bonuses and payments are not part of wages for computing the ESI contribution:

Washing Allowance
Annual Bonus
Incentive Bonus
Production Bonus
Inam/ Ex-Gratia Payment
Annual Commission
Service Charges
Gazetted Allowance
Exgratia Payment During Strike for Travelling Expenses
Saving Scheme
Hamals/ Coolies Employed at a Particular Time: Outside the premise of the establishment, it is not considered as part of the wage. While, if the service is rendered inside the premise of the establishment, it will be considered part of the wage.
Expenditure on Servicing of Machines
Commission to Dealers/Agents
Service Contract
Payment made on account of un-availed leave at the time of discharge.
Commission on advertisement secured for Newspapers, if not paid to the regular employee
Fuel allowance/Petrol allowance
Entertainment allowance
Shoe allowance
Payment made on account of gratuity on discharge/retirement
Payment made on encashment of the leave

Employee State Insurance Contribution Collection

An employer is responsible for paying his contribution for each employee and deducting employee contributions from wages bills. Furthermore, the employer must pay the contributions to the Corporation within 15 days of the last day of the calendar month in which the contributions are due.

The Corporation has authorised certain State Bank of India branches and a few other banks to accept payments on its behalf.

Contribution Period and Benefit Period

Under the ESI scheme, the contribution period is 6-month. Therefore, there are two contribution periods in a year. Furthermore, there is a corresponding benefit period of a 6-month duration for each contribution period. Following are the contribution periods and their corresponding benefit period:

For the contribution period from 1^st April to 30^th September, the corresponding cash benefit period is 1^st January of the following year to 30^th June.
For the contribution period from 1^st October to 31^st March of the following year, the corresponding cash benefit period is 1^st July to 31^st December.

The contribution period concept benefits an employee whose salary increases beyond the threshold limit.

For example, if your salary was INR 20,000 in May 2022, and from June 2022, it becomes INR 23,000. The contributions till 30^th September 2022 will be considered on the revised salary of INR 23,000 for ESI calculation purposes. Post which, you will not qualify for the ESI contribution. Since the salary threshold is INR 21,000. However, you will be eligible for the corresponding benefit period (1^st January 2023 to 30^th June 2023).