ESI (Employees' State Insurance)

Employees' State Insurance is India's contributory health and social security scheme for lower-paid workers in the organised sector. It is administered by the Employees' State Insurance Corporation, a statutory body under the Ministry of Labour and Employment, and funded by contributions from employees and employers rather than from general taxation.

The benefit is delivered largely in kind. Covered workers and their dependants get treatment at ESIC hospitals and dispensaries, alongside cash benefits during sickness, maternity and disablement.

The scheme was created by the Employees' State Insurance Act, 1948. That Act was repealed on 21 November 2025 by the Code on Social Security, 2020, which absorbed it along with the Employees' Provident Funds Act, the Payment of Gratuity Act, the Maternity Benefit Act and five further statutes. The Corporation and the scheme continue under the Code, with the coverage changes described below.

Coverage works on two tests, and both have to be met.

The establishment test looks at headcount. The scheme applies to non-seasonal factories and to notified establishments such as shops, hotels, restaurants, cinemas, road transport and newspaper establishments. The threshold is generally 10 or more employees, though some states apply 20 for certain categories, so the state notification governs.

The employee test looks at wages. An employee is covered while monthly wages are within the ceiling, currently 21,000 rupees, raised to 25,000 rupees for an employee with a disability. Once an establishment is covered it stays covered even if employee numbers later fall below the threshold.

The Code widens the first test in three directions, and an employer who last checked coverage before November 2025 may now be in scope.

• Under the 1948 Act, ESI applied area by area as the government notified implementation, so an establishment could be over the headcount threshold and still outside the scheme because its district had not been notified. The Code extends the scheme to the whole of India. Geography is no longer a reason to be outside it.
• Where an establishment carries on a hazardous or life-threatening occupation as notified, ESI is mandatory even if it employs a single person. The headcount threshold does not apply at all.
• An establishment below the threshold can opt in by agreement between the employer and the employees, which gives smaller employers a route to the medical benefit without waiting to grow into it.

The Code also provides for extending the scheme to gig workers, platform workers and unorganised sector workers through notified schemes. Confirm what has actually been notified in that direction rather than assuming coverage either way.

An employee earning below a low daily-wage threshold is exempt from the employee share, but the employer still pays its own contribution for that worker.

Here is a worked example. An employee earning 18,000 rupees a month contributes 135 rupees and the employer contributes 585 rupees, a total of 720 rupees remitted for that employee.

The wage base is the part worth re-examining under the Code. The 1948 Act had its own definition of wages, drawn broadly enough to cover most regular monthly payments, which made the ESI base wider than the provident fund base. The Code applies a single definition across the schemes it governs: basic, dearness allowance and retaining allowance, with excluded components added back where they exceed one-half of total remuneration. One definition now drives ESI, provident fund and gratuity together, which simplifies configuration but means a payroll carrying two separate wage bases from the old Acts needs reconciling rather than migrating as-is.

The contribution rates were last revised in 2019. Confirm the rates, the ceiling and the operation of the wage definition currently in force before configuring payroll, since these are set by notification rather than fixed in the Code.

ESI runs on two fixed six-month contribution periods, each linked to a later benefit period during which the employee can claim.

This structure produces the rule employers most often get wrong. If an employee's wages rise above the ceiling in the middle of a contribution period, contributions continue at the higher wage until that period ends. Coverage does not stop in the month of the increment, and stopping it early creates a shortfall that surfaces at inspection.

The scheme pays several distinct benefits rather than a single lump sum.

• Medical benefit: treatment for the insured person and dependants, from the first day of insurable employment.
• Sickness benefit: cash paid at around 70 per cent of wages for certified sickness, up to 91 days in a year, subject to a minimum contribution record.
• Maternity benefit: paid leave for confinement at the full average daily wage, subject to conditions.
• Disablement benefit: temporary or permanent, paid at a higher percentage of wages for employment injury.
• Dependants' benefit and funeral expenses, payable where a worker dies from employment injury.

Rates and qualifying conditions for each benefit are set by ESIC and revised from time to time, so verify current figures rather than quoting a percentage from memory.

A covered employer registers on the ESIC portal, obtains a 17-digit code, and registers each eligible employee to generate an insurance number and ESI card.

Contributions for a month are payable by the 15th of the following month, through a challan generated on the portal. Late payment attracts simple interest on the outstanding amount plus damages, calculated at rates that increase with the length of the delay.

Employers also file half-yearly returns aligned to the contribution periods and maintain the prescribed registers of wages and attendance for inspection.