ESI Contribution Rate and Calculation for 2024

ESI Contribution Rate and Calculation for 2024

Introduction:

The Employee State Insurance (ESI) is a self-contributing social security and health insurance scheme. It provides financial assistance to employees for sickness, maternity, and employment injury. Additionally, it covers medical expenses for the employee's family members. Establishments or non-seasonal factories with over 10 employees (or 20 in some states) and a maximum salary of INR 21,000 must register with ESI within 15 days of applicability. In this article, we will delve into the details of wage inclusions and exclusions according to the ESI Act, as well as ESI calculation.

According to the ESI Act, the contribution towards ESI consists of both the employer's and employee's contributions. The contribution rates are fixed and subject to revision. As of 2024, the employer's ESI contribution rate is 3.25% of the wages payable to the employee. The employee's ESI contribution percentage for 2024 stands at 0.75% of their wage. However, if an employee's daily average wage is up to INR 137, they are exempt from contribution payment. Nevertheless, employers are still required to pay their contribution for such employees.

To calculate ESI, the contributions are based on the wages paid to the employees. The employer's contribution rate is 3.25% of the payable wages, while the employee's contribution rate is 0.75% of the payable wages. The formula for calculating the total ESI contribution is as follows:

Total ESI Contribution = Employer's Contribution + Employee's Contribution

Let's illustrate the ESI contribution calculation with an example. Mr. Anuj works in an establishment that qualifies under the ESI Act. His monthly wage is INR 15,000. The contribution towards the Employee State Insurance Scheme is as follows:

Employer's Contribution = INR 15,000 * 3.25% = INR 487.50

Employee's Contribution = INR 15,000 * 0.75% = INR 112.50

Total ESI Contribution = INR 487.50 + INR 112.50 = INR 600

Wage Components as per ESI Act

It's important to note that not all allowances, bonuses, and payments made to employees are considered part of their wages for ESI contribution calculations. The ESI Act specifies the following inclusions and exclusions under the wage component:

Inclusions:

- Suspension Allowance or Subsistence Allowance

- Overtime Allowance

- Wages Paid During Layoff

- House Rent Allowance

- Night Shift, Heat, Gas and Dust Allowance

- Conveyance Allowance

- Medical Allowance

- Newspaper Allowance

- Education Allowance

- Drivers Allowance (under certain conditions)

- Food/Milk/Tiffin/Lunch Allowance (under certain conditions)

- Wages and Dearness Allowance for Unsubstituted Holidays

- Interim Relief

- Attendance Bonus

- Expenditure on Annual/Periodical Services Contract (contribution payable only on the amount paid for service contracts)

Exclusions:

- Washing Allowance

- Annual Bonus

- Incentive Bonus

- Production Bonus

- Inam/Ex-Gratia Payment

- Annual Commission

- Service Charges

- Gazetted Allowance

- Exgratia Payment During Strike for Travelling Expenses

- Saving Scheme

- Hamals/Coolies Employed at a Particular Time (not considered as part of the wage if outside the premise of the establishment, but considered if rendered inside the premise of the establishment)

- Expenditure on Servicing of Machines

- Commission to Dealers/Agents

- Service Contract

- Payment made on account of un-availed leave at the time of discharge

- Commission on advertisement secured for Newspapers (if not paid to the regular employee)

- Fuel allowance/Petrol allowance

- Entertainment allowance

- Shoe allowance

- Payment made on account of gratuity on discharge/retirement

- Payment made on encashment of leave

Collection of Employee State Insurance Contribution

It is the responsibility of employers to pay their contribution for each employee and deduct employee contributions from wage bills. These contributions must be paid to the Corporation within 15 days of the last day of the calendar month in which the contributions are due. Certain State Bank of India branches and a few other banks have been authorized by the Corporation to accept payments on its behalf.

Contribution Period and Benefit Period

Under the ESI scheme, the contribution period spans six months, resulting in two contribution periods per year. Each contribution period is followed by a corresponding benefit period of six months. Here are the contribution periods and their corresponding benefit periods:

1. Contribution period from 1st April to 30th September corresponds to the cash benefit period from 1st January of the following year to 30th June.

2. Contribution period from 1st October to 31st March of the following year corresponds to the cash benefit period from 1st July to 31st December.

This contribution period concept benefits employees whose salary increases beyond the threshold limit. For instance, if your salary was INR 20,000 in May 2022 and increased to INR 23,000 from June 2022, the contributions until 30th September 2022 would be calculated based on your revised salary of INR 23,000 for ESI purposes. After that, you will no longer qualify for ESI contribution since the salary threshold is INR 21,000. However, you will still be eligible for the corresponding benefit period from 1st January 2023 to 30th June 2023.

Introduction:

The Employee State Insurance (ESI) is a self-contributing social security and health insurance scheme. It provides financial assistance to employees for sickness, maternity, and employment injury. Additionally, it covers medical expenses for the employee's family members. Establishments or non-seasonal factories with over 10 employees (or 20 in some states) and a maximum salary of INR 21,000 must register with ESI within 15 days of applicability. In this article, we will delve into the details of wage inclusions and exclusions according to the ESI Act, as well as ESI calculation.

According to the ESI Act, the contribution towards ESI consists of both the employer's and employee's contributions. The contribution rates are fixed and subject to revision. As of 2024, the employer's ESI contribution rate is 3.25% of the wages payable to the employee. The employee's ESI contribution percentage for 2024 stands at 0.75% of their wage. However, if an employee's daily average wage is up to INR 137, they are exempt from contribution payment. Nevertheless, employers are still required to pay their contribution for such employees.

To calculate ESI, the contributions are based on the wages paid to the employees. The employer's contribution rate is 3.25% of the payable wages, while the employee's contribution rate is 0.75% of the payable wages. The formula for calculating the total ESI contribution is as follows:

Total ESI Contribution = Employer's Contribution + Employee's Contribution

Let's illustrate the ESI contribution calculation with an example. Mr. Anuj works in an establishment that qualifies under the ESI Act. His monthly wage is INR 15,000. The contribution towards the Employee State Insurance Scheme is as follows:

Employer's Contribution = INR 15,000 * 3.25% = INR 487.50

Employee's Contribution = INR 15,000 * 0.75% = INR 112.50

Total ESI Contribution = INR 487.50 + INR 112.50 = INR 600

Wage Components as per ESI Act

It's important to note that not all allowances, bonuses, and payments made to employees are considered part of their wages for ESI contribution calculations. The ESI Act specifies the following inclusions and exclusions under the wage component:

Inclusions:

- Suspension Allowance or Subsistence Allowance

- Overtime Allowance

- Wages Paid During Layoff

- House Rent Allowance

- Night Shift, Heat, Gas and Dust Allowance

- Conveyance Allowance

- Medical Allowance

- Newspaper Allowance

- Education Allowance

- Drivers Allowance (under certain conditions)

- Food/Milk/Tiffin/Lunch Allowance (under certain conditions)

- Wages and Dearness Allowance for Unsubstituted Holidays

- Interim Relief

- Attendance Bonus

- Expenditure on Annual/Periodical Services Contract (contribution payable only on the amount paid for service contracts)

Exclusions:

- Washing Allowance

- Annual Bonus

- Incentive Bonus

- Production Bonus

- Inam/Ex-Gratia Payment

- Annual Commission

- Service Charges

- Gazetted Allowance

- Exgratia Payment During Strike for Travelling Expenses

- Saving Scheme

- Hamals/Coolies Employed at a Particular Time (not considered as part of the wage if outside the premise of the establishment, but considered if rendered inside the premise of the establishment)

- Expenditure on Servicing of Machines

- Commission to Dealers/Agents

- Service Contract

- Payment made on account of un-availed leave at the time of discharge

- Commission on advertisement secured for Newspapers (if not paid to the regular employee)

- Fuel allowance/Petrol allowance

- Entertainment allowance

- Shoe allowance

- Payment made on account of gratuity on discharge/retirement

- Payment made on encashment of leave

Collection of Employee State Insurance Contribution

It is the responsibility of employers to pay their contribution for each employee and deduct employee contributions from wage bills. These contributions must be paid to the Corporation within 15 days of the last day of the calendar month in which the contributions are due. Certain State Bank of India branches and a few other banks have been authorized by the Corporation to accept payments on its behalf.

Contribution Period and Benefit Period

Under the ESI scheme, the contribution period spans six months, resulting in two contribution periods per year. Each contribution period is followed by a corresponding benefit period of six months. Here are the contribution periods and their corresponding benefit periods:

1. Contribution period from 1st April to 30th September corresponds to the cash benefit period from 1st January of the following year to 30th June.

2. Contribution period from 1st October to 31st March of the following year corresponds to the cash benefit period from 1st July to 31st December.

This contribution period concept benefits employees whose salary increases beyond the threshold limit. For instance, if your salary was INR 20,000 in May 2022 and increased to INR 23,000 from June 2022, the contributions until 30th September 2022 would be calculated based on your revised salary of INR 23,000 for ESI purposes. After that, you will no longer qualify for ESI contribution since the salary threshold is INR 21,000. However, you will still be eligible for the corresponding benefit period from 1st January 2023 to 30th June 2023.

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