What is ESI, and Who is Eligible To Get It?

Insurance is said to be one's best support even when things go awry. Team Gotaxfile, through this article, therefore, sheds light on the precariousness of life through details about the Employee State Insurance Scheme (ESI). ESIC, which stands for Employees' State Insurance Corporation, is the governing body responsible for this scheme.

It is a statutory scheme set up under the ESI Act, 1948. The ESI scheme is a multi-dimensional social security scheme devised to cushion employees covered under the plan against any distress events arising out of sickness, disablement, maternity, or death due to employment injury. According to the ESI rules, it also intends to provide medical care to the insured employees who need to tend to their family's needs.

This scheme gets regulated from its headquarters, which is in New Delhi. The 23 regional offices, 26 sub-regional offices in different Indian states, and over 800 local offices positioned in the country assist in the proper implementation of the ESI scheme. Furthermore, Medical Benefit Council, a specialized body, advises the ESIC on the administration of medical benefits.

How does the ESI scheme help?

The ESI scheme aids with full care of medical issues for the employees who are registered members under the ESI Act, 1948 during the tenure of their incapacity to work or restoration of health. It facilitates a smooth ESI calculation.

A central government survey showed that as of 31st March 2019, a total of 3.14 crore employees with the total count of beneficiaries accumulating up to 13.32 crore were part of this scheme.

It mainly provides financial assistance to compensate the loss of the family members during the period of their absenteeism from work due to sickness, maternity, or any employment injury.

Life plays its role and puts people under uncertain situations. Thus, ESI focuses on looking after their family members as well.

The benefits facilitated are categorized into two categories:

• Cash benefits (includes sickness, maternity, funeral expenses, medical bonus, disablement, etc.)
• Non-cash rewards or benefits via medical care.

How is the composition of the members of the ESIC?

The ESI scheme is administered by the statutory corporate body- Employers' State Insurance Corporation (ESIC), which comprises various leading members.

The members are as follows:

• The Director-General of ESIC, Chief Executive Officer, also known as the ex-officio.
• Chairman appointed by the Central Government.
• Vice-President appointed by the Central Government.
• Not more than 5 people nominated by the Central Government.
• 1 person representing each state again appointed by the Central Government.
• 1 person as per the Central Government nomination representing the Union territory.
• 10 people representing employers nominated as per the Central Government.
• 10 people representing employers selected as per the Central Government.
• 2 people representing the medical field appointed by the Central Government.
• Lastly, 3 members from the parliament
• 2 from Lok Sabha
• 1 from Rajya Sabha.

The quote 'of the people, by the people, for the people,' stands true for the ESI scheme as it is self-financed. The funds that get generated out of the contributions made by the employers and employees are payable monthly as a pre-determined percentage of wages paid. Nevertheless, the State Governments have a role to play too in this fair share of contribution, bearing 1/8th share of the cost of Medical Benefit.

Who are eligible according to the ESI rules under this scheme?

According to the ESI rules, it pertains to all categories of establishments as defined in the Act.

The establishments include factories, restaurants, corporates, cinemas, offices, medical, hotels, and other relevant institutions. These units get declared as Covered Units.

They must have ten or more employees or staff with the beneficiaries' monthly wages not exceeding Rs.21,000, easily making them eligible to be covered for the ESI calculation.

Whereas employees who are earning a daily average of Rs.176 get exempted from paying ESIC contribution. However, the employers are in charge of their share of contribution.

The salary components necessary for ESI calculation are:

ESI calculation involves the use of an employee's gross (total) monthly salary. There is always confusion among people understanding the process of ESI calculation or the ESI rules because there is a lack of awareness about the concept of the Gross Salary.

Let's begin by understanding what Gross Salary amount is and what role it plays in ESI calculation.

Gross salary denotes the gross income received / earned by an employee while working on the job before deductions, i.e., it covers the employee's medical insurance, ID allowances details, social security, state, and central taxes.

Thus, for the ESI calculation, salary has to consider the following payable amounts:

• Basic Salary pay
• Dearness allowances (DA)
• House Rent Allowances (HRA)
• Incentives (includes sales commission)
• Meal allowance
• City compensatory allowance
• Uniform allowances
• Other special type of allowance

The gross monthly salary does not include an Annual bonus like a Diwali bonus amount, retrenchment compensation amount, or encashment of leave and gratuity.

What are the contribution rates according to the ESI rules?

As per the latest ESI rule:

• Employees' contribution is 0.75%
• Employers contribution is 3.25%
• It then adds up to a total of 4% of the employees' monthly wages.

How is ESI calculation done?

As mentioned above, ESI calculation has to take various elements of an employees' salary such as Basic Salary Pay, Dearness Allowances (DA), City Compensatory Allowance, HRA, or Employee Incentives.

Lets' understand ESI calculation with the help of an Illustration:

The rates as a percentage of gross wages paid it the employees are explained below:

	Percentage of Gross Pay	Example Gross Salary	Contributions
Employee Deduction	0.75%	Rs. 10,000	10,000*0.75%= 75.00
Employer Deduction	3.25%	Rs. 10,000	10,000*3.25%= 325.00
Total Contributions for this employee			75.00 + 325.00 = Rs.400.00

If the employee's gross salary exceeds Rs.21,000 during the contribution according to the ESI rules, the ESI calculation shall apply to the new salary.

Contribution Period and Benefit Period

For a thorough ESI calculation, it is an obligation to maintain proper records. But often, in scenarios of a salary change, confusion arises amongst payroll administrators, especially in the case where salary is greater than the ESI limit of Rs. 21,000.

To avoid such confusion, ESI has formulated a contribution period wherein the ESI contributions will continue even though salary is above the maximum limits.

There are two intervals of contribution periods of six months and two cash benefit interval periods of six months.

Contribution period	Benefit Period
1st April to 3oth September	1st January to 30th June
1st October to 31st March	1st of July to 31st of December

Consider a hypothetical example, say Mr. Alex was earning wages amounting to Rs.19,000 till July 2020, the wages increase to Rs. 22,000 in August. But the contribution period is 1st April to 30th September. So, the deduction can be availed until the end of the ESI contribution period, i.e., September. Those deductions are going to get calculated on the increased gross salary amount of Rs.22,000. Lastly, Alex will be eligible to avail of benefits up to 30th July of the following years.

Similar ESI rules are applicable when there is a salary increment during the second contribution period as well. As recommended, the contributions must be made by both the employers and the employees. This rule further helps in safeguarding the employees in case of any uncertainties.

Reach out to Gotaxfile experts for any ESI-related confusion!

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