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Tuesday 12 April 2011

Employee State Insurance (ESI) Concept

What is ESI?.

ESI refers to Employee State Insurance. This is an insurance scheme run by the government. In this scheme, an employee contributes part of his salary as an insurance premium. Along with the employee, the employer also contributes to the scheme. The government collects this money and operates ESI hospitals.

• whenever an employee falls sick, he can go to these ESI hospitals and avail free treatment.

• ESI contribution is mandatory for all employees who draw a gross of less than 15000/-

What are the rates for contribution (deduction) to ESI?
• For employees, ESI deduction rate is 1.75% of the ESI Gross salary.
• For employer, ESI contribution is at the rate of 4.75% of the ESI gross salary.

What is ESI Gross Salary?

Generally all the income components paid to an employee is considered for ESI Gross computation.

What are the other rules governing ESI?

ESI contribution stops when the employee's gross income crosses Rs. 15000/-.


o This stoppage of ESI cannot happen in any month. The changeover from ESI-deduction to no-ESI-deduction can happen only in 3rd (March) or 9th (September) month only. i.e. even if an employee's salary crosses, 15000 in July, he will continue to have ESI deduction until August.
o In the September payroll, the employee's ESI deduction will be zero (as he has crossed Rs. 15000/-)

o The comparison of income is done with Full Income and the calculation of ESI is done on the actual payout (income).

What are the various ESI reports?

• ESI Monthly report - This report is generated monthly. This gives the total deductions/contribution (employee and employer) done for each employee for a month.

• ESI Form 6 - This is a half yearly report.
• ESI Form 7 - This is also a half yearly report

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