ESI registration and contributions for employers

Law

ESI Act 1948, now Code on Social Security 2020

Threshold

10 or more employees

Wage ceiling

₹21,000 a month

Contribution

3.25% employer, 0.75% employee

Who must register

The ESI scheme applies to non-seasonal factories and to establishments notified by the appropriate government, including shops, hotels, restaurants, cinemas, road transport undertakings, newspaper establishments, and private educational and medical institutions. Coverage is triggered when such a unit employs 10 or more persons and is located in an area where the scheme has been implemented, which now includes most districts.

Employees whose wages are up to ₹21,000 a month (₹25,000 for persons with disability) are covered. Employees earning more are outside the scheme, although an employee covered at the start of a contribution period stays covered until it ends even if wages rise. Like PF, once an establishment is covered, it stays covered even if the headcount later falls. The Code on Social Security allows the government to extend ESI to smaller establishments, particularly those in hazardous occupations, by notification.

Contribution rates and periods

Wages for ESI include basic pay, dearness allowance and most regular allowances, and the Code's wider definition of wages also applies. Overtime is included for contributions but not counted for deciding whether an employee crosses the coverage ceiling.

What employees get

ESI is an insurance scheme, so contributions buy specific benefits for the insured person and, for some benefits, their family:

• Medical benefit: full medical care for the employee and dependants at ESI dispensaries and hospitals, and tie-up hospitals.
• Sickness benefit: cash payment at 70% of wages for certified sickness, for up to 91 days in a year.
• Maternity benefit: full wages for up to 26 weeks.
• Disablement benefit: for employment injury, temporary or permanent.
• Dependants' benefit: a monthly pension to the family if an employee dies from employment injury.
• Unemployment allowance under the ESIC's scheme for insured persons who lose employment, subject to conditions, and funeral expenses.

Because ESI covers employment injury, a covered employer is generally relieved of the separate liability for compensation to covered employees under the employees' compensation law, which is a real benefit for factories and workshops.

How to register with ESIC

1. Sign up: the employer creates an account on the ESIC portal or through the Shram Suvidha portal.
2. Employer registration form: details of the unit, its activity, address, date of commencement, the date the headcount reached 10, and the owners or directors are filed online.
3. Employer code: ESIC allots a 17-digit employer code immediately on submission, and the registration letter is generated online.
4. Employee registration: each covered employee is registered and receives an Insurance Number (IP number) and an e-Pehchan card. Family details are added so dependants can use medical services.
5. Verification: ESIC may verify documents or inspect the unit after registration.

There is no government fee for registration. Companies incorporated through SPICe+ get an ESIC registration with incorporation, which must be activated properly once coverage applies. ESIC also has a scheme for voluntary early registration that can make sense for growing businesses.

Monthly compliance and penalties

Each month the employer files the contribution details online and pays the challan by the 15th. Accidents at work must be reported to ESIC promptly, and registers of employees and wages maintained for inspection. Late payment attracts simple interest at 12% a year, and ESIC can levy damages on a sliding scale up to the amount of arrears. Failure to pay contributions deducted from employees' wages is a prosecutable offence.

Where ESIC believes contributions were short-paid, it can determine the amount after hearing the employer. These orders can be challenged before the Employees' Insurance Court. We prepare replies using your payroll and attendance records and represent you at the hearings.

What ESI costs the employer

Registration with ESIC is free. The ongoing cost is the employer's contribution of 3.25% of the wages of each covered employee, so an employee earning ₹18,000 a month costs the employer ₹585 a month in ESI, and ₹135 is deducted from the employee's pay. Against this, the employee and family get cashless medical care and the employer is largely relieved of separate compensation liability for employment injuries to covered employees.

Some employers also buy a group health policy. That does not replace ESI for covered employees: contributions remain compulsory even if a private policy exists. Our fee for registration is one-time, and monthly filing is billed on headcount.

Contract workers, branches and other special cases

• Contract and outsourced workers: the principal employer must ensure that contractors register their workers and pay contributions. If the contractor defaults, ESIC can recover the contribution from the principal employer, who may then recover it from the contractor. Ask contractors for monthly proof of payment.
• Branches in other cities: branches are usually covered through sub-codes linked to the main employer code, so that employees can use ESI facilities near where they work.
• Apprentices: apprentices engaged under the Apprentices Act are generally outside the definition of employee; trainees engaged on other terms may not be.
• Employees crossing ₹21,000: an employee who gets a raise during a contribution period stays covered until that period ends, and contributions continue on the actual wages.
• New joiners: each new employee must be registered on the portal from the date of joining, so that they and their family can get treatment straight away.

Most disputes with ESIC come from these situations, not from the basic calculation, so we set up a monthly check for them.

ESI and PF together

ESI and PF are separate schemes with separate thresholds. Many businesses cross the ESI threshold at 10 employees before they reach 20 for PF registration. An employee earning ₹18,000 a month in a covered unit with 25 staff will be in both schemes; an employee earning ₹40,000 will be in PF (if already a member or opted in) but not ESI. Running both from one payroll, along with professional tax where applicable, keeps the records consistent when an inspector compares them. For disputes over coverage or wages, our labour law team can advise.

Documents you need

For ESI registration we need:

• PAN and constitution documents of the establishment
• GST certificate, Shops and Establishments registration or factory licence
• Address proof of the premises
• PAN and Aadhaar of the proprietor, partners or directors
• List of employees with date of joining, gross wages and Aadhaar
• Bank account details of the establishment
• Family details of each employee for the e-Pehchan card

How we handle it for you

1. Check coverage

   We confirm whether your area is implemented and which employees fall under ₹21,000.

2. Register the employer

   We file on the ESIC portal and obtain the 17-digit code.

3. Register employees

   We generate IP numbers and e-Pehchan cards for each covered employee.

4. Monthly filing

   We file contributions and pay the challan before the 15th.

5. Inspections and claims

   We support you in ESIC inspections, accident reports and assessment hearings.

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