ESI Scheme: Eligibility, Contribution & Benefits

Last verified: 2026-07-14

The ESI scheme is India’s contributory social security and health insurance system for organised-sector workers, governed by the Employees’ State Insurance Act, 1948 and run by the Employees’ State Insurance Corporation (ESIC). It covers employees who earn up to Rs. 21,000 a month (Rs. 25,000 for a person with disability) in establishments employing 10 or more workers. The employee contributes 0.75 percent of wages and the employer 3.25 percent, a total of 4 percent, and in return the worker and dependants get medical care plus cash benefits for sickness, maternity, disablement and death by employment injury.

This article sets out who is eligible for the ESI scheme, how the contribution is calculated, the benefits it pays, how registration and compliance work, and what the 2026 labour codes changed.

The 1948 Act was India’s first social-security statute of its kind, and the scheme has since grown to cover most districts of the country. From 21 November 2025 the ESI scheme also sits inside Chapter IV of the Code on Social Security, 2020, which carries the corporation and its benefits forward with the same core mechanics and a wider reach.

A caveat before the numbers. Both coverage and benefit turn on defined terms, “employee” under Section 2(9) and “wages” under Section 2(22), and on a timing system of contribution periods and benefit periods. Most of the confusion about “I pay ESI but was refused a benefit” starts with that timing, not with the rates.

Eligibility for the ESI scheme

Eligibility for the ESI scheme turns on two things: the size of the establishment and how much the employee earns. If the establishment is covered and the worker’s monthly wages are within the ceiling, coverage is not optional, it is mandatory for both sides. Neither the employer nor the employee can contract out of it.

The scheme is a compulsory contributory one, not a voluntary insurance product. Once an establishment and an employee fall within the Act, the deduction and the employer’s share both begin automatically, and the worker becomes an “insured person” entitled to the benefits set out later in this article.

Which establishments are covered

The Act applies in the first place to non-seasonal factories employing 10 or more persons, and Section 2(12) defines “factory” for this purpose. Section 1(4) and 1(5) then let the appropriate government extend the scheme by notification, and over the decades that power has been used widely.

Today the ESI scheme covers not just factories but shops, hotels, restaurants, cinemas and theatres, road-motor transport undertakings, newspaper establishments, and private medical and educational institutions, wherever they employ 10 or more persons. A handful of states still apply a threshold of 20 for some of these establishments, so the local notification always has to be checked, but 10 is the general line.

One point employers routinely miss: coverage is sticky. Once the Act applies to an establishment, it continues to apply even if the number of employees later drops below the threshold, under Section 1(6). The question is never only “how many people work here now”, it is whether the establishment ever crossed the line.

The Rs. 21,000 wage ceiling

The ESI scheme is aimed at lower and middle-income workers, so entitlement is capped by a wage ceiling. An employee whose gross monthly wages do not exceed Rs. 21,000 is covered; the ceiling is Rs. 25,000 for an employee with disability, who the scheme deliberately keeps in cover for longer.

“Employee” here is defined broadly under Section 2(9). It reaches not only those on the direct payroll but also people employed through a contractor or immediate employer, and those doing work that is preliminary or incidental to the establishment’s work. The Supreme Court read this width into the section in Transport Corporation of India v. Employees’ State Insurance Corporation, holding that workers engaged through an immediate employer, and branches under the control of a covered principal office, fall inside the Act. Apprentices engaged under the Apprentices Act, 1961 are one clear exclusion, because they are trainees rather than employees. Coverage of contract and fixed-term and contract employees is exactly the area where employers most often get their headcount wrong.

So the eligibility test has two limbs run together: is the establishment covered, and is this particular worker an “employee” earning within the ceiling. Both have to be satisfied.

When an employee crosses the ceiling mid-period

Here is the rule that trips up payroll teams more than any other. If an employee is covered at the start of a contribution period and their wages rise above Rs. 21,000 partway through it, coverage does not stop on the day of the raise. The contribution continues, on the higher wages, right up to the end of that contribution period.

Only from the next contribution period does the now-higher-earning employee leave the scheme. The logic is that a benefit period is already running against those contributions, so cover cannot be switched off mid-stream. Stopping the deduction the moment a salary revision lands is a common and expensive compliance error, because ESIC treats the shortfall as an unpaid contribution and adds interest and damages to it.

ESI contribution: rates, wage base and how it is calculated

The ESI contribution is 4 percent of wages: the employee pays 0.75 percent and the employer pays 3.25 percent. Section 39 of the Act makes the contribution payable, and the rates are fixed by the ESI (Central) Rules. Both shares are worked out on the employee’s monthly wages and deposited together by the employer.

The current rates have applied since 1 July 2019, when the government cut the total from 6.5 percent to 4 percent. Before that, the employer paid 4.75 percent and the employee 1.75 percent; the reduction to 3.25 and 0.75 was the first rate cut in over two decades, aimed at bringing more establishments into voluntary compliance.

The current contribution rates

The split is deliberately lopsided. The employer carries 3.25 percent and the employee only 0.75 percent, so the bulk of the cost sits with the establishment, not the worker. Section 40 makes the employer the “principal employer” responsible for paying both shares in the first place, and it then recovers the employee’s 0.75 percent by deduction from wages.

What the employer cannot do is shift its own share onto the employee. The employer’s 3.25 percent must come out of the employer’s pocket, and any attempt to deduct it from the worker’s wages is expressly barred by Section 40(3). An employee whose payslip shows a 4 percent ESI deduction is being overcharged; only 0.75 percent is theirs to bear.

There is also a floor for the lowest-paid. An employee earning up to the daily wage limit the government notifies (currently Rs. 176 a day) is exempt from paying the employee’s share, though the employer still pays its 3.25 percent. The benefit side is unaffected, so the lowest earners get full cover without any deduction.

What counts as “wages” for ESI

“Wages” for the ESI scheme is defined in Section 2(22), and it is wider than the basic-plus-dearness-allowance base used for gratuity. It covers all remuneration paid in cash under the contract of employment, so basic pay, dearness allowance, house rent allowance, city compensatory allowance and most regular monthly allowances all go into the contribution base.

The definition then carves out specific items. The employer’s own contribution to any pension or provident fund, any travelling allowance or the value of travelling concession, any sum paid to defray special work expenses, and gratuity payable on discharge are all excluded from wages. The travelling-allowance exclusion is where a long-running dispute settled: in Employees’ State Insurance Corporation v. Texmo Industries, the Supreme Court held that a conveyance allowance is a form of travelling allowance and therefore falls outside “wages” under Section 2(22)(b), so no ESI contribution is due on it.

The practical takeaway is that ESI wages sit somewhere between basic-plus-DA and full gross salary. Compute the contribution on too narrow a base and the shortfall surfaces at inspection; compute it on conveyance or reimbursements that the Act excludes and the establishment overpays. The line is Section 2(22), read with the exclusions.

A worked contribution example

Take a concrete case. Suppose an employee’s ESI wages come to Rs. 18,000 a month. The employee’s share is 0.75 percent of that and the employer’s share is 3.25 percent, and each is rounded up to the next rupee.

So Rs. 135 comes out of the employee’s wages and Rs. 585 is added by the employer, for a total of Rs. 720 deposited for the month. The individual contribution is rounded up to the next higher rupee, and the total is what the employer remits in a single challan.

Is the base always this clean? Not quite. Where overtime is paid, it counts as wages for computing the contribution even though it is ignored for the Rs. 21,000 coverage ceiling, which is a distinction worth keeping straight. But the arithmetic of every ESI contribution is this one split: 0.75 and 3.25 on the Section 2(22) wage.

The deposit deadline

Timing matters as much as the amount. The employer must deposit the total contribution for a month by the 15th of the following month, through a single online challan on the ESIC portal. Miss that date and the contribution is treated as delayed, not merely late in paperwork.

A delayed contribution carries a real price: simple interest at 12 percent a year for the period of delay under Section 39(5), and damages on top, graded by how long the default ran. That is why the 15th is a hard line in every payroll calendar, and why the compliance section below matters even for an establishment that has always intended to pay.

Contribution periods and benefit periods

The ESI scheme runs on two six-month contribution periods, each linked to a later benefit period. This calendar is what decides when a worker’s contributions actually convert into an entitlement, and it is the single most misunderstood part of the scheme.

Contributions are collected over a contribution period, and the cash benefits earned by those contributions are drawn during a corresponding benefit period that starts a few months later. The gap is deliberate: it gives ESIC time to reconcile who paid how many days before the benefit window opens.

The two cycles and the lag

There are two contribution periods in a year. The first runs from 1 April to 30 September, and the second from 1 October to 31 March. Each maps to a benefit period that begins about three months after the contribution period ends.

Contributions paid in the April-to-September period support the benefit period from 1 January to 30 June of the following year. Contributions paid in the October-to-March period support the benefit period from 1 July to 31 December. So the cash benefit you can claim today rests on the contributions you paid roughly six months to a year earlier, not on this month’s deduction.

Why the timing decides your cash benefit

The lag matters because most cash benefits carry a qualifying-days condition tied to the contribution period. Sickness benefit, for instance, requires that contributions were paid or payable for at least 78 days in the relevant contribution period. A worker who joined recently, or who was absent for long stretches, may have paid ESI and still fall short of the qualifying days for a particular benefit.

This is the answer to the common grievance, “I had ESI deducted but was refused sickness benefit”. The deduction alone does not create the entitlement; the qualifying number of contribution days in the right period does. Some benefits, though, do not wait for any of this. Medical care and the disablement benefit for an employment injury are available from the first day of insurable employment, with no qualifying-days rule at all, because an accident at work cannot be made to wait for a benefit period to mature.

ESI benefits: medical, sickness, maternity, disablement and more

The ESI scheme pays six benefits under Section 46 of the Act, including full medical care that carries no monetary ceiling. In return for the 4 percent contribution, an insured person and their dependants get treatment and a cash cushion across the main risks of working life: illness, childbirth, workplace injury and death.

The benefits divide into two families. Medical benefit is care in kind, delivered through ESI hospitals, dispensaries and tie-up institutions. The rest are cash benefits, paid as a percentage of wages, and each has its own rate and qualifying condition.

Medical and sickness benefit

Medical benefit is the backbone of the scheme. From the first day of insurable employment, the insured person and their family are entitled to full medical care, out-patient and in-patient, with no ceiling on how much ESIC spends on treatment. This is what distinguishes ESI from a pure cash scheme: the medical cover is comprehensive and family-wide.

Sickness benefit is the cash companion to it. During a spell of certified sickness, the insured person is paid 70 percent of their wages for up to 91 days in any two consecutive benefit periods, provided contributions were paid for at least 78 days in the relevant contribution period. For serious, long-term illness the scheme goes further: extended sickness benefit is payable at 80 percent of wages for up to two years for 34 specified malignant and long-term diseases, for a worker with at least two years of continuous insurable employment.

There is also an enhanced sickness benefit set at 100 percent of wages for insured persons who undergo sterilisation, covering the recuperation period. The rate structure is deliberate: ordinary sickness at 70 percent, chronic disease at 80 percent, and a full-wage rate to encourage family-planning procedures.

Maternity benefit

Maternity benefit gives an insured woman paid leave around childbirth at full wages. It is payable at 100 percent of the average daily wage for 26 weeks, of which not more than eight may be taken before the expected delivery, for a woman with up to two surviving children. For a third or subsequent child the entitlement is 12 weeks, and a miscarriage carries six weeks.

The qualifying condition is lighter than for sickness: contributions must have been paid for at least 70 days in the one or two immediately preceding contribution periods. Because ESIC funds the payment, maternity benefit under the scheme does not fall on the employer’s own account the way ordinary maternity leave does. Where no ESI medical facility is available for the confinement, the scheme also pays confinement expenses of Rs. 5,000, admissible for up to two confinements.

Disablement and dependants’ benefit

Where a worker is hurt on the job, the scheme responds without waiting for any qualifying period. Temporary disablement benefit is paid at 90 percent of wages for as long as the disablement lasts, and it is available from the very first day of insurable employment because an employment injury can happen at any time. Permanent disablement benefit, where the injury leaves a lasting loss, is paid as a monthly amount at 90 percent of wages, scaled to the loss of earning capacity certified by a Medical Board.

If the worst happens and the insured person dies as a result of an employment injury or occupational disease, dependants’ benefit takes over. It is paid at 90 percent of wages as a monthly pension to the widow, children and other dependants in the shares the Act prescribes. The scheme also pays funeral expenses of Rs. 15,000 to the person who performs the last rites, a small but immediate sum meant to reach the family without delay.

The 90 percent rate across all three employment-injury benefits is the scheme’s most generous, and it reflects a policy choice: the risks that arise from the work itself are compensated more fully than ordinary sickness. The same worker’s end-of-service money, gratuity in India, sits alongside these benefits rather than overlapping with them.

Unemployment relief

The scheme has grown beyond its original medical core to cover loss of the job itself. Under the Atal Beemit Vyakti Kalyan Yojana, an insured person who becomes unemployed can draw a relief payment at 50 percent of the average daily wage for up to 90 days, once in a working lifetime. It is a short bridge, meant to tide a worker over between jobs.

A longer cushion exists under the Rajiv Gandhi Shramik Kalyan Yojana. A worker with at least three years of insurable employment who loses the job through closure, retrenchment or permanent invalidity of not less than 40 percent can draw an unemployment allowance at 50 percent of wages for up to two years, along with continued medical care and vocational training. Together, these two schemes turn ESI from pure health cover into something closer to full social security.

ESI registration, compliance and dispute resolution

An establishment that crosses the coverage line must register with ESIC within 15 days, and keep paying and filing monthly thereafter. Registration is not a one-time formality; it opens a continuing obligation to deduct, deposit and report every month, and the penalties for slipping are among the sharpest in Indian labour law.

The compliance chain has three links: register the establishment and its employees, deposit and file every month, and resolve any dispute through the forum the Act specifies rather than the ordinary courts. Each has its own rules.

Employer and employee registration

Registration is now fully online. Within 15 days of the Act becoming applicable, the employer applies on the ESIC portal, and on registration the establishment is allotted a 17-digit Employer Code Number that identifies it in every future filing. The obligation to register rests on the principal employer and does not wait for any notice from ESIC.

Each covered employee is then registered as an insured person, allotted an Insurance Number, and issued a biometric identity (Pehchan) card that the worker and dependants use to access ESI hospitals and dispensaries. The Insurance Number stays with the worker for life, so a person who moves between covered jobs keeps the same number and continuous cover, rather than starting afresh each time.

Monthly compliance and penalties

Every month the employer files a contribution return and deposits the total contribution by the 15th of the following month. The return records each employee’s ESI wages and days worked, which is what lets ESIC track the qualifying days that later decide benefit claims. The iPleaders piece on an employer’s guide to ESI concepts and compliance sets out the registration and filing steps in more operational detail.

Default is treated seriously. A delayed contribution attracts simple interest at 12 percent a year under Section 39(5), and separate damages graded by the length of the delay, running up to 25 percent a year for the longest defaults. Section 85 makes non-payment of a contribution a criminal offence carrying imprisonment and fine, and Section 85B allows ESIC to recover damages. For an employer, the cheapest ESI is always the one paid on time. A full new labour code compliance checklist is the practical way to fold the ESI deadlines into a single monthly routine.

Disputes and the Employees’ Insurance Court

Disputes under the scheme do not go to a civil court. Section 74 sets up a specialised Employees’ Insurance Court, and Section 75 gives it jurisdiction over the questions that actually arise: whether an establishment or a person is covered, what contribution is due, and whether a benefit claim is payable. The EI Court is meant to be quicker and more expert than ordinary litigation.

That forum is also exclusive. Section 75(3) bars civil courts from deciding any matter the EI Court is empowered to decide, so an employer or employee cannot bypass it with a civil suit. An appeal from the EI Court lies to the High Court under Section 82, but only on a substantial question of law. The practical route for any ESI dispute is therefore the EI Court first, and the High Court only on a genuine point of law.

What the 2026 rules changed under the Code on Social Security

The 2026 change is structural: the ESI scheme now sits inside Chapter IV of the Code on Social Security, 2020, which absorbed the standalone Employees’ State Insurance Act, 1948 when the four labour codes came into force across India on 21 November 2025. For a covered worker, the day-to-day scheme feels unchanged, because the Code carries the corporation, the contribution mechanics and the benefits forward almost intact.

The 4 percent contribution survives. The wage-ceiling mechanism survives. ESIC continues as the administering body, and the benefit structure carries over. If you knew ESI under the 1948 Act, you already know most of the Code. What the Code adds is reach, part of the wider consolidation of twenty-nine separate labour statutes into four labour codes in India.

ESI moves into the Code on Social Security

Under the Code, the ESI provisions live in Chapter IV, and they read closely to the old Act. The corporation, the standing committee, the medical benefit council, the contribution machinery and the six benefits all reappear in the new structure rather than being rewritten. This is a rehousing, not a redesign, and the continuity is deliberate.

What changes for employers is mostly plumbing. Definitions, registers and filings are being harmonised across the codes, so ESI records now sit in the same compliance architecture as provident fund and gratuity, instead of in a silo of their own. The single wage definition under the Code on Wages, 2019 also feeds the ESI wage base, which reduces the room for disputes about which allowances count.

Wider coverage under the Code

The real expansion is in who the scheme reaches. ESIC has been extended to most districts of the country, steadily replacing the old patchwork where the scheme operated only in a limited set of notified areas. The Code goes further and lets ESI apply to an establishment carrying on a hazardous or life-threatening occupation even where it employs a single person, dropping the ten-employee threshold entirely for the most dangerous work.

The Code also opens the door to the workers the old Act largely left out. It brings gig workers and platform workers within the social-security framework, and allows voluntary and aspirational coverage of smaller and unorganised-sector units. For a labour market that increasingly runs on contract, platform and gig arrangements, this is the change that matters most, because it treats those workers as insurable rather than as outside the system.

What it means for employers

For a settled, covered establishment, the mechanics barely move: the same 0.75 and 3.25 split, the same monthly challan, the same benefits. What changes is the size of the base that has to be brought into compliance and the harmonised way it is filed.

The employers who need to pay attention are those running hazardous single-employee units, or a workforce built on contract and gig labour, who could previously treat ESI as someone else’s problem. Under the Code, that assumption no longer holds.

Frequently asked questions

1. What is the ESI scheme? The ESI scheme is a contributory social-security and health-insurance system under the Employees’ State Insurance Act, 1948, run by the Employees’ State Insurance Corporation (ESIC). It covers lower and middle-income workers in establishments with 10 or more employees, funding medical care and cash benefits for sickness, maternity, disablement and death by employment injury.

2. Who is eligible for the ESI scheme? An employee earning gross wages of up to Rs. 21,000 a month (Rs. 25,000 for a person with disability) in a covered establishment employing 10 or more persons. “Employee” under Section 2(9) includes those engaged through a contractor or immediate employer; apprentices under the Apprentices Act, 1961 are excluded.

3. What is the ESI contribution rate? The total is 4 percent of wages: the employee pays 0.75 percent and the employer pays 3.25 percent, with effect from 1 July 2019. The employer deposits both shares and cannot deduct its own 3.25 percent from the employee’s wages.

4. What counts as “wages” for ESI? Under Section 2(22), wages include basic pay, dearness allowance, house rent allowance and most regular monthly allowances paid in cash. Travelling and conveyance allowance, the employer’s PF contribution, gratuity and sums to defray special expenses are excluded. The Supreme Court in ESIC v. Texmo Industries held conveyance allowance is not wages.

5. What happens if my salary crosses Rs. 21,000 during the year? Coverage continues to the end of the running contribution period. If your wages exceed Rs. 21,000 partway through a contribution period, ESI is still deducted on the higher wages until that period ends, and you leave the scheme only from the next period.

6. What benefits does the ESI scheme give? Full medical care for the worker and family, plus cash benefits: sickness benefit, maternity benefit, temporary and permanent disablement benefit, dependants’ benefit, funeral expenses and unemployment relief. Medical care and employment-injury benefits start from the first day of insurable employment.

7. What is the ESI sickness benefit rate? Sickness benefit is 70 percent of wages for up to 91 days in any two consecutive benefit periods, provided contributions were paid for at least 78 days in the relevant contribution period. Extended sickness benefit is 80 percent for up to two years for 34 specified long-term diseases.

8. What is the maternity benefit under ESI? An insured woman gets maternity benefit at 100 percent of the average daily wage for 26 weeks (12 weeks for a third or later child), subject to at least 70 days of contribution in the preceding period. ESIC funds the payment, and confinement expenses of Rs. 5,000 are payable where no ESI facility is available.

9. What are the disablement and dependants’ benefits? Temporary disablement benefit is 90 percent of wages while the disablement lasts, from day one, with no qualifying period. Permanent disablement benefit is 90 percent scaled to loss of earning capacity. On death by employment injury, dependants’ benefit is 90 percent of wages as a monthly pension, plus Rs. 15,000 funeral expenses.

10. What is the difference between a contribution period and a benefit period? A contribution period is the six months over which you pay ESI (1 April to 30 September, or 1 October to 31 March). The linked benefit period, starting about three months later, is when the resulting cash benefits can be drawn. The gap explains why current benefits rest on earlier contributions.

11. How does an employer register for ESI? The employer applies online on the ESIC portal within 15 days of the Act becoming applicable and is allotted a 17-digit Employer Code Number. Each covered employee is registered as an insured person with an Insurance Number and a Pehchan card. The duty rests on the principal employer and does not wait for a notice.

12. What is the penalty for not paying ESI contributions? A delayed contribution attracts simple interest at 12 percent a year under Section 39(5) and damages graded up to 25 percent a year. Non-payment is a criminal offence under Section 85, carrying imprisonment and fine, and ESIC can recover damages under Section 85B.

13. What is the difference between ESI and EPF? ESI is health-and-cash social security for workers up to Rs. 21,000 a month, funding medical care and benefits like sickness and maternity. EPF is a retirement-savings scheme with a separate contribution and wage threshold. A worker can be covered by both at once, and each has its own registration and returns.

14. Did the 2026 labour codes change the ESI scheme? The scheme moved into Chapter IV of the Code on Social Security, 2020 from 21 November 2025, keeping the 4 percent contribution, the wage ceiling and the benefits. The real changes are wider coverage: hazardous establishments with even one employee, a far wider set of districts across the country, and gig and platform workers brought within the framework.

References

Case Law

1. Transport Corporation of India v. Employees’ State Insurance Corporation, (2000) 1 SCC 332: employees engaged through an immediate employer or contractor, and branches under the supervision and control of a covered principal office, fall within the definition of “employee” under Section 2(9) and are covered by the Act.
2. Employees’ State Insurance Corporation v. Texmo Industries: a conveyance allowance is a form of travelling allowance and is therefore excluded from “wages” under Section 2(22)(b), so no ESI contribution is payable on it. (Supreme Court, 2021.)

Statutes

1. Employees’ State Insurance Act, 1948. Sections cited: 1(4) to 1(6) (application and continuance), 2(9) (employee), 2(12) (factory), 2(22) (wages), 39 (contribution and interest on delay), 40 (principal employer’s duty and bar on deducting the employer’s share), 46 (benefits), 74 to 75 (Employees’ Insurance Court and its exclusive jurisdiction), 82 (appeal to the High Court), 85 and 85B (penalties and damages).
2. Code on Social Security, 2020. Chapter IV (Employees’ State Insurance Corporation), in force from 21 November 2025; carries the ESI scheme forward and extends coverage to hazardous single-employee establishments, all districts, and gig and platform workers.

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult a qualified legal professional.