How to calculate ESIC from salary & ESIC Formula

The calculation of ESI is based on the employees wage.

ESI is a contributory fund administrated by Employee State Insurance Corporation and covered by the ESI Act of 1948, providing workers with insurance cover in uncertain and challenging times.

A fund that provides insurance and cash benefits later on is created through both employer and employee contributions.

What is ESI and What stands for ESI Factory Act?

The Employees State Insurance Scheme (ESI) provides aids in challenging situations.

The ESI Factory Act is applicable to non-seasonal factories with 10 or more employees as well as shops and establishments covered by the Shops and Establishments Act. Any unit with 10 or more employees comes under the scheme.

However, not all establishments are covered by the Act. Which employees are covered by the Act? An employee whose monthly income does not exceed Rs 21,000 excludes overtime, bonuses, and leave encashment is entitled to coverage.

ESI Calculation Formula

Total ESI Contribution = Employers Contribution + Employees Contribution.

ESI calculation on Salary?

ESI contributions are calculated based on wages paid. Employer contributions are currently 3.25% and employee contributions 0.75% in India.

In our example, Mr Praveen is working in a factory unit for a salary of Rs 15,000.

Here is what Mr. Praveen’s ESI contribution will be:

An Employee Contributes 0.75% of 15,000, which equals 112.5.

An Employer Contributes 3.25% of 15,000, which equals 487.5.

Mr Praveen’s employer must deposit Rs 600, the total contribution, to the corporation within the stipulated period after you calculate the contributions, and deductions from his wages.

The collection of ESI contributions

A deduction from an employee’s salary is required of both the employer and the employee. A contribution of the amount deducted that was not deposited with the corporation within 15 days of the month in which it was deducted (employers’ contribution + employees’ contribution) must be deposited with the corporation.

Among the banks authorized to collect payments on behalf of ESIC (Employees’ State Insurance Corporation of India) are SBI and some others.

Time Period for ESI contributions and benefits

There are two contributions periods in a year, so there are two benefit periods of six months each. Moreover, every contribution period comes with a benefit period of six months.

ESI Contribution Period	ESI Benefit Period
From April 1^st to September 30^th	FROM JANUARY 1^st TO JUNE 30^th
From OCt 1^st to March 31^st	FROM JULY 1st to DECEMBER 31st

When an employee’s salary reaches a certain threshold, he or she benefits from the contribution period concept.

It is assumed that Praveen’s salary in May 2021 was Rs 15000, and it rose to Rs 21,000 in June 2021. In April and May, the ESI contribution was Rs 15000, and in June and September, it was Rs 21,000, respectively.

After September, when the ESI contribution period ends, the employee does not qualify for the program. This is advantageous to the employee as they receive more contributions.

Employees receive benefits between January and June of the same year, though.

ESIC Act Registration Benefits

Employees and their dependents are protected by ESIC, a social security program designed to protect them in case of an emergency, sickness, or death.

1. Unemployment Benefit –

In the case of involuntary loss of employment or permanent invalidity caused by a non-employment injury, ESIC provides a monthly cash allowance for a maximum of 24 months.

2. Sick Benefit –

A maximum of 91 days in a year can be taken as medical leave under ESIC, which pays 70% of the employee’s wage every month.

3. Maternity Benefit –

The maternity benefit is available to ESIC employees who are expecting a child. It provides 100 percent of the wages to the employee during the 26-week time of labor. If a miscarriage occurs, the employee will receive 6 weeks of wages. If the employee adopts the child, they will receive 12 weeks of wages.

4. Dependants Benefit –

A dependents benefit pays monthly payments to the dependants of the deceased employee who dies as a result of an employment injury.

5. Disablement Benefit –

The ESIC pays a monthly salary to employees who become permanently or temporarily disabled while at work. Employees who are disabled for a limited period of time receive their monthly wages, while those who are disabled for life receive their wages.

6. Health Benefits –

Besides helping employees with their medical costs and hospital bills, the employee state insurance corporation also provides coverage to their family members.

Filing an ESI returns

ESI returns are required for establishments covered by ESIC’s 1948 Act. ESIC’s website provides Form 1 in PDF format for employers to download, fill out, and submit.

ESI filing deadlines

ESI returns must be filed by the deadlines listed below for both periods.

Contributions between 1^st April 2021 to 30^th September 2021 – 12^th November 2021.
Contributions between 1^st October 2021 to 31^st March 2022 – 12^th May 2022.

Registering for ESI requires the following documents

Each establishment covered under the ESIC Act, 1948 must register with ESI in Salary in order to ensure compliance under the Act and make sure their employees benefit from it. Listed below are the required documents

Proof of Business Address.
Official Business PAN card.
Directors, Partners, and Shareholders details.
Certificates of Business Licenses.
The salary structure and details of each employee.
Details of your bank account.
Business deeds, articles of association, assembly resolutions, or articles of incorporation.

Employer contributions are liable for penalties if not paid

Employees and employers must deposit ESI as part of their salaries.
In the ESI act, not paying the employee’s contribution is a punishable offense.
Late payment, non-payment, or false payment can result in a fine of Rs 5,000 or a two-year jail term.

FAQ’s

1. What is the formula for calculating ESI based on salary?

Under the ESI Act, employers contribute 3.25% of their employees’ wages, with employees contributing 0.75%. As a result, employees receive insurance in difficult times.

2. How Much is the ESI Limit?

Combined wages including basic pay, HRA, DA, medical allowance, and commission are calculated to reach Rs 21,000 under the Employees State Insurance Act, 1948.

3. What is the ESI calculation method?

Employers and employees contribute 3.25% and 0.75% percent of their gross salaries to the employee’s health insurance fund, and the fund is used for workers’ compensation in difficult times.

4. ESI offers what benefits?

As part of ESI, there are several benefits available: Unemployment Allowance, Dependant’s Benefit, Disablement Benefit, Maternity Benefit, Sickness Benefit, and Medical Benefits.