The Employee State Insurance Act, 1948 is applicable to factories, manufacturing units and establishments employing 10 or more persons with wages up to INR 21000 per month, excluding overtime wages.
Note that once a factory or establishment is covered under ESI Act, it will continue to be covered even if the number of workers fall below the threshold of 10 employees. i.e. “Once covered for ever”
Also note that this Act is applicable for Shops employing 20 or more persons (in case of Maharashtra, Assam, HP and UP).
Contribution
Employer contribution is 4.75% of wages
Employee contribution is 1.75% of wages
Contribution compliance
The total amount of contribution (employer and employee) is to be deposited with an authorized bank through a challan in the prescribed form on or before 21st of the following month in which the wages fall due.
Wages – what’s covered
- Basic Pay
- Dearness Allowance
- House Rent Allowance
- City compensatory allowance
- Overtime wages (not to be taken into account while determining the coverage of an employee)
- Payment for day of rest
- Suspension allowance
- Payment for un-substituted holidays
- Production incentive
- Bonus other than statutory bonus
- Night shift allowance
- Heat, Gas and Dust allowance
- Meal / food allowance
- Lay off compensation
- Children education allowance (not being reimbursement of actual tuition fee)
What’s not covered
- Gratuity
- Payment in lieu of retrenchment compensation
- Benefits paid under ESI Scheme
- Leave en-cashment
- Conveyance
- Daily allowance for period spent on tour
- Employer contribution under PF / ESI
Benefits to employees
Medical, sickness, extended sickness for certain diseases, enhanced sickness, dependents’ maternity, funeral expenses, rehabilitation allowance, medical benefit to insured person and his or her spouse, medical bonus and physical aids.
Notes:
- For the purpose of calculating wages, Overtime is excluded. So employee is covered if his/her wages excluding Overtime does not exceeds INR 21000 per month.
- Directors whose salary does not exceed INR 21000 per month is also covered
- A Partner is not covered under ESI Act even if he/she is deriving salary below INR 21000
- Since consultants don’t work in company premise and carry our business, they are not covered under ESI Act.
- The Employer Contribution should not be deducted from the Employee’s salary/wages.