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Employees’ State Insurance (ESI) Scheme: Registration, Procedure, Benefits

Updated on: 03 Mar, 2023 02:54 PM

What is ESI? What is the meaning of ESIC?

The Employees State Insurance Scheme is social insurance embodied to protect employees from the incidences like maternity, sickness, disablement, and death due to employment injury which results in loss of wages and to provide medical care to insured and their family. The Act also ensures reasonably good medical care to workers and their dependents.
Employees’ State Insurance Corporation (ESIC), incorporated under the ESI Act. It is an autonomous corporation regulated under the supervision of the Ministry of Labour and Employment, Government of India.
Since it is a legal entity and therefore the corporation can raise and discharge loans, with the earlier approval of the regulatory body and it can also acquire both movable and immovable property in its name, and all income derived from the operations shall vest with the corporation itself.
The corporation can establish hospitals either independently or can collaborate with the state government or other private hospitals, but the state government is responsible for the majority of the hospitals and dispensaries.

Who is covered under the ESI Act?

B. P. Adarkar was appointed, in March 1943, by the Government of India to prepare a report on the health insurance of industrial workers. This report became the basis for the Employment State Insurance (ESI) Act of 1948.

The ESI act applies to:

  1. Non-seasonal factories employing 10 or more persons
  2. Shops,
    Cinemas including preview theatres,
    Road motor transport undertakings,
    Newspaper establishments,
    Establishments engaged in Insurance Business,
    Non-Banking Financial Companies,
    Port Trust,
    Airport Authorities and
    Warehousing establishments
    having 10* or more persons in employment.
  3. Private Medical and Educational Institutes having 10* or more persons in employment.

Moreover, ESI act applies to the one drawing the monthly wage up to ₹21,000/- (w.e.f January 01, 2017) (In case of a person with a disability this limit is ₹25,000/-).
*Note: The number of employees in certain states like Maharashtra and Chandigarh is still 20.

How does the contributions in ESI scheme work?

This scheme works based on contributions and ensures its self-financing from such contribution. The employer is liable to deduct the contribution of employees and deposit that along with his contribution with ESIC within 15 days from the month end in which the contribution falls due. An employer can use either of the online or offline modes, through authorized banks to deposit the contribution.
The employer and employee contribute the funds at a rate notified by the government. Such a contribution is made at a fixed percentage of wages paid. At present, the rates of contribution are 1% of wages for employee and 4% of wages paid for the employer. Moreover, for the newly established setup, the contribution rate for the first 24 months is 1% for employee and 3% for the employer. Besides these provisions, the employer is entitled to contribute on behalf of employees whose daily wage is below ₹137. The employees having a daily wage of ₹137 is exempted from such contribution.

How ESI and medical insurance different?

Employee State Insurance (ESI) and medical insurance are two very different options that a person can choose for the benefits of employees. While the former is a life insurance scheme which can be availed by employees who earn upto ₹ 21,000 per month. In case of some mishappening to the policyholder, the nominee receives a cover amount. In case of any injury, the person can get treated at ESI empaneled hospitals.
Medical insurance covers a wider range. There are various types of medical insurance policies which you can purchase depending on the medical history, and financial capabilities. If a person avails medical insurance from an insurer, he/she can get admitted under any of the network hospitals which has tie-ups with the insurance company. The medical expenses are covered, and thus the person does not have to worry about shelling out savings to clear the medical expenses. Also, medical policy gives everyone an option to secure their medical liabilities irrespective of income restrictions. As there are plans which people can opt for according to their paying capacities.
It is recommended that ESI is treated solely as a life insurance policy and is completely different from medical insurance. This facility is of no use if the person is treated at any other hospital which does not provide any facilities to people availing ESI. However, medical insurance does not work like that. There is a large network of hospitals, and if you get treated at any of those hospitals, you can ask the insurer to provide coverage.
Thus, both ESI and medical insurance are two different products, and it is recommended that you purchase both to enjoy its benefits and also avail tax benefits.

What are the benefits of ESIC for employers & employees?

For the employees the ESI scheme is beneficial in the following ways:

  1. Medical Benefits to the employees and dependent family members
  2. Sickness benefits of 70% of daily wages in cash for any illness which is certified and lasts for a maximum period of 91 days in a year
  3. Maternity Benefit for the pregnancy is payable for the period of 26 weeks and can be extended further to one month on the advice of medical officer
  4. In case of death of the employee while on work – 90% of the total salary is provided to the dependents of the employee every month after the death,
  5. Same benefits in case of disability of the employee
  6. Funeral expenses
  7. Old age care medical expenses

Employers who come under the liability of the ESI Act, 1948, gets the following benefits:

  1. Employers are discharged from all liability for providing any medical facilities in any form to employees and dependent family members.
  2. The employers get an exemption from certain mandatory regulations such as:
    1. Maternity Benefits Act
    2. Employees Compensation Act for the employees covered under the ESI Act.
  3. Employers get the benefit of Tax exemption under the Income Tax Act for the amount of contributions made under this scheme by him.

What is the procedure to register under ESI?

Registration of Employer:
Any employer who employs more than 10 employees in any day is mandatorily required to take up the ESI Registration.

  1. First, a registration Form-01 is required to be submitted to ESIC,
  2. Within 15 days of submission of the Employer’s registration form (Form-01), the company or firm is expected to obtain 17 digit unique Identification number or Code Number from the Regional office.
  3. This unique number will be used in correspondence related to the scheme. A declaration in Form 3 accompanies Form 1.

Registration of Employee:

  1. At joining the Private Limited Company, an employee is required to fill the Declaration form, i.e., Form1 along with a copy of the family photo which the employer will be further submitting at the ESI branch office.
  2. Under the ESI scheme a permanent photo ID and an insurance number for identification purpose is provided to the employee within 3 months.
  3. Later on the registration can transfer if the employee switches his company

How much insurance benefit is covered in the ESIC scheme?

Section 46 of the ESI Act, 1948 specifies six social security benefits which are as follows:-

Medical Benefit:
Insured person and his family members from the day he enters insurable employment are entitled to full medical care. There is no upper limit as such on the expenditure for the treatment of an Insured Person or his family member.
Medical care is also provided to permanently disabled and retired insured persons and their spouses on payment of a token annual premium of ₹120/-.

Sickness Benefit:Sickness Benefit (SB) is payable to insured workers. It is available in the form of compensation in cash at the rate of 70 percent of wages. The wages for this purpose are considered during the periods of sickness which is certified. The benefit is available for a maximum of 91 days in a year. To become eligible for the sickness benefit, insured worker is required to contribute to the organization for a minimum of 78 days in a contribution period of 6 months.

  1. Extended Sickness Benefit(ESB): SB is extendable up to two years in the case of 34 long-term and malignant diseases at an enhanced rate of 80 percent of wages.
  2. Enhanced Sickness Benefit: Full wage is payable to insured persons undergoing sterilization for seven days/fourteen days for male and female workers respectively as an Enhanced Sickness Benefit.

Maternity Benefit (MB):
Maternity Benefit for confinement or pregnancy is payable for the period of Twenty Six (26) weeks. This benefit at the medical advice is extendable by further one month at the rate of full wage. The extendable benefit is available only when the employee has contributed for 70 days at least in the preceding two Contribution Period.

Disablement Benefit

  1. Temporary disablement benefit (TDB): It is payable to the employee from day one of entering insurable employment & notwithstanding of having paid any contribution in case of employment injury. TDB is payable as long as the disability continues at the rate of 90% of wage.
  2. Permanent disablement benefit (PDB): The benefit is paid in the form of monthly payment at the rate of 90% of wages. It depends upon the extent of loss of earning capacity as certified by a Medical Board.

Dependents Benefit (DB):
It is paid to the dependants family member of a deceased Insured person in the form of monthly payment at the rate of 90% of wage in cases where death occurs due to occupational hazards or employment injury.

Other Benefits:

  • a. Funeral Expenses:
    It is payable to the dependents or to the person who performs the last rites of the insured person who deceased after entering insurable employment, an amount of Rs.10,000/- toward expenses of the funeral.
  • b. Confinement Expenses:
    These expenses are payable in case confinement occurs of an Insured Women or an I.P. in respect of his wife, at a place where necessary medical facilities under the ESI Scheme are not available.

Besides, the scheme also provides some other need-based benefits such as

  1. Vocational Rehabilitation: it is provided to a permanently disabled person for undergoing VR Training at VRS.
  2. Physical Rehabilitation: it is provided to a person who is physically disabled due to employment injury.
  3. Old Age Medical Care: This is available for Insured Persons who are retiring on attaining the age of superannuation or under Voluntary or Early Retirement Scheme and the person required to leave service due to permanent disability of insured person or spouse, on payment of Rs. 120/- per annum.

Who is eligible for ESIC registration?

Any Factory or Establishment who is employing 10 or more workers/employees (for some States or Union Territories number of employees is 20 to get covered under the ESI Act,1948) and whose wages are up to ₹21000 per month is eligible for ESI registration.

Is it mandatory to pay ESIC?

The Employees’ State Insurance Corporation (ESIC) has decided to raise the threshold limit for mandatory workers in the organized sector to Rs.21,000 per month from its existing threshold of Rs.15,000 per month. This provision will come into effect from 1st October 2016.

  • This move is expected to bring an additional 5 million employees under insurance coverage taking the total of insured persons under ESIC pool to over 30 million.
  • The persons currently insured, whose salary would go above Rs.21,000 per month as a result of the salary hike proposed by ESIC’s standing committee, will be allowed to continue under the ESIC scheme.
  • Further, the Union labour ministry has proposed that the provident fund, pension and insurance benefits which are only given to a section of organized sector workers, should be extended to the whole working population of the country by 2030.
  • The move comes after the central trade union went on a nation-wide strike on 2nd September 2016 against “unilateral labor reforms and anti-worker policies” of the government.

How much ESI is deducted from salary in India? Is there any salary limit?

Employee State Insurance Corporation (ESIC) is deducted on gross salary consist of 1% from the employee contribution & 4% from the employer contribution. All the eligible employees who fall under the ceiling of ₹ 25000 will monthly contribute 1% of their salary and employers contribute 4% to the ESI contribution fund.

Can we withdraw ESI amount?

ESIC is insurance for people below a certain income level. It helps you to get excellent medical care that too free of cost for yourself and your family. ESI deduction is a premium toward such insurance which a person cannot withdraw.

How to claim ESIC benefits in India?

To claims benefits of ESIC employee or their dependent has to fill particular form according to the benefits that they are seeking. The list of the various forms are as follows:

  • Form-15 claim for dependent benefit by ESIC:

Form-15 used for permanent disablement benefit provided by the ESIC scheme. Users are required to read the form and fill up as per the given instructions. Form-15 used for permanent disablement benefit

  • Form-22for Funeral Expenses Claim Form-22 for Funeral Expenses Claim
  • Form-20 To file a Claim for Maternity Benefit after the death of an Insured Women leaving behind the child
  • Form-19 File claim for Maternity Benefit and notice of work
  • Form-16 Claim for periodical payment of dependent benefits
  • Form-14 To file a Claim for permanent disablement benefit by ESIC Form-14 To file a Claim for permanent
  • Form-32 Wage/contributory record for disablement benefit Form-32 Wage/contributory record
  • Form 142 Claim for conveyance allowance Form 142 Claim for conveyance allowance
  • Form 11 For accident book Form 11 For accident book
  • Form 12 For accident report
  • Form 23 Life certificate for permanent disability benefits Form 23  Life certificate for permanent disability benefits
  • Form 24 Declaration and certificate for dependent benefits Form 24 Declaration and certificate for dependent benefits

How is the format of the ESIC code?

ESIC code is a 17 digit unique identification code. Let’s break these 17 digits and try to understand their significance:

  1. The first two digits stand for the region in which company is situated or established, e.g., 31 is for Mumbai, and 52 is for Hyderabad.
  2. Next two represents the main region code, i.e., the region in which the regional office is situated.
  3. Next set of digits represent unique companies code; it can be of a maximum of six digits.
  4. The next three digits represent several branches that the company have.
  5. Next four digit stands for the type of business activity in which a company is involved.

Is ESIC registration required for startups?

Yes, this act applies to every corporate or registered organization having:

  1. Non-seasonal factories employing 10 or more persons
  2. Shops,
    Cinemas including preview theatres,
    Road motor transport undertakings,
    Newspaper establishments,
    Establishments engaged in Insurance Business,
    Non-Banking Financial Companies,
    Port Trust,
    Airport Authorities and Warehousing establishments having 10* or more persons in employment.
  3. Private Medical and Educational Institutes having 10* or more persons in employment.

Moreover, the employees are drawing the monthly wage up to ₹21,000/- (w.e.f January 01, 2017) (In case of a person with a disability this limit is ₹25,000/-).
*Note: The number of employees in certain states like Maharashtra and Chandigarh is still 20.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.