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

Employees’ State Insurance (ESI) Scheme is a social insurance program designed to protect employees in India from various employment-related risks such as maternity, sickness, disablement, and death due to employment injury. The scheme provides financial assistance and medical care to insured employees and their families. In this comprehensive guide, we will explore the registration process, procedure, and benefits of the ESI scheme in detail.

What is Employees’ State Insurance (ESI) Scheme?

The Employees’ State Insurance (ESI) Scheme is a social insurance program that aims to provide financial and medical benefits to employees and their families in times of need. The scheme is embodied to protect employees from various risks associated with employment, such as maternity, sickness, disablement, and death due to employment injury. It ensures the provision of reasonably good medical care to workers and their dependents.

What is the Employees’ State Insurance Corporation (ESIC)?

The Employees’ State Insurance Corporation (ESIC) is an autonomous corporation established under the ESI Act. It operates under the supervision of the Ministry of Labour and Employment, Government of India. As a legal entity, the ESIC has the authority to raise and discharge loans with regulatory approval. It can also acquire movable and immovable property in its name, and all income derived from its operations vests with the corporation itself.

The ESIC can establish hospitals independently or in collaboration with state governments or private hospitals. However, the majority of hospitals and dispensaries are managed by the state government. The ESIC plays a crucial role in implementing and administering the ESI scheme across the country.

Who is Covered Under the ESI Act?

The ESI Act applies to various establishments and organizations, including:

  1. Non-seasonal factories employing 10 or more persons.
  2. Shops, hotels, restaurants, and cinemas, including preview theatres.
  3. Road motor transport undertakings.
  4. Newspaper establishments.
  5. Establishments engaged in insurance business.
  6. Non-Banking Financial Companies.
  7. Port Trust.
  8. Airport Authorities.
  9. Warehousing establishments having 10 or more persons in employment.
  10. Private medical and educational institutes have 10 or more persons in employment.

It is important to note that the ESI Act also applies to individuals drawing a monthly wage up to ₹21,000 (₹25,000 in the case of a person with a disability). However, the number of employees required for coverage may vary in certain states like Maharashtra and Chandigarh, where it is still 20.

How Does the Contributions in ESI Scheme Work?

The ESI scheme operates on a contributions-based system, ensuring its self-financing from these contributions. Both the employer and the employee contribute funds at a rate determined by the government. The contribution is calculated as a fixed percentage of the wages paid.

Currently, the contribution rates are 1% of wages for employees and 4% of wages for employers. For newly established setups, the contribution rates for the first 24 months are 1% for employees and 3% for employers. Employers are also required to contribute on behalf of employees whose daily wage is below ₹137.

The employer is liable to deduct the employee's contribution and deposit it, along with their own contribution, with the ESIC within 15 days from the end of the month in which the contribution falls due. Employers can use either online or offline modes, through authorized banks, to deposit the contributions.

How is ESI Different from Medical Insurance?

Employee State Insurance (ESI) and medical insurance are two different options that individuals can choose for employee benefits. While ESI is a life insurance scheme that provides coverage to employees earning up to ₹21,000 per month, medical insurance covers a wider range of medical expenses.

ESI functions as a life insurance policy, wherein the nominee receives a cover amount in case of any mishap to the policyholder. Treatment under ESI can only be availed at ESI empanelled hospitals. On the other hand, medical insurance policies offer greater flexibility and coverage. Individuals can get admitted to any network hospital affiliated with the insurance company and have their medical expenses covered, regardless of income restrictions.

ESI is recommended as a life insurance policy, while medical insurance provides comprehensive coverage for medical expenses. It is advisable to have both types of insurance to enjoy their respective benefits and avail tax benefits.

Benefits of ESIC for Employers and Employees

The ESI scheme offers several benefits for both employers and employees. Let's take a closer look at these benefits:

Benefits for Employees:

  1. Medical Benefits: Insured employees and their dependent family members are entitled to medical care. There is no upper limit on the expenditure for the treatment of an insured person or their family members.
  2. Sickness Benefits: Insured workers are eligible for sickness benefits, which provide compensation in cash at the rate of 70% of their daily wages during certified periods of sickness. This benefit is available for a maximum of 91 days in a year, provided the worker has contributed for a minimum of 78 days in a 6-month contribution period.
  3. Maternity Benefit: Female employees are entitled to maternity benefits for a period of 26 weeks. On the advice of a medical officer, this benefit can be extended by an additional month. To be eligible for the extended benefit, the employee must have contributed for at least 70 days in the preceding two contribution periods.
  4. Death Benefit: In the unfortunate event of an employee's death while at work, the dependents of the employee are provided with 90% of the total salary every month as a death benefit.
  5. Disability Benefit: Employees who become permanently disabled due to employment injury are eligible for disability benefits. Temporary disablement benefits provide 90% of the wages for the duration of the disability, while permanent disablement benefits are provided in the form of monthly payments at a rate of 90% of wages, based on the extent of loss of earning capacity.
  6. Funeral Expenses: The scheme covers funeral expenses, providing a sum of Rs. 10,000 towards the last rites of the insured person.
  7. Old Age Care Medical Expenses: Insured persons receive medical care for old age-related issues, ensuring their well-being and healthcare needs are met.

Benefits for Employers:

  1. Discharge from Medical Facility Liability: Employers are relieved of the liability to provide medical facilities to employees and their dependent family members, as the ESIC takes over this responsibility.
  2. Exemptions from Certain Regulations: Employers are exempted from certain mandatory regulations such as the Maternity Benefits Act and the Employees Compensation Act for employees covered under the ESI Act.
  3. Tax Exemption: Employers can avail tax exemption under the Income Tax Act for the contributions made towards the ESI scheme.

Procedure for ESI Registration

The registration process for the ESI scheme involves two steps: registration of the employer and registration of the employee. Let's understand these steps in detail:

Registration of Employer:

  1. Any employer who employs more than 10 employees in a day is required to register under the ESI Act.
  2. The employer must fill out the registration Form-01, which needs to be submitted to the ESIC.
  3. Within 15 days of submitting the employer's registration form (Form-01), the company or firm will receive a 17-digit unique identification number or Code Number from the regional office. This number will be used in all correspondence related to the scheme.
  4. A declaration in Form 3 accompanies Form 1 during the registration process.

Registration of Employee:

  1. When an employee joins a private limited company, they are required to fill out the Declaration form (Form 1) and provide a copy of their family photo. The employer will then submit these documents to the ESI branch office.
  2. Within 3 months, the employee will be provided with a permanent photo ID and an insurance number for identification purposes.
  3. If an employee switches companies, their registration can be transferred to the new employer.

Insurance Benefits Covered Under the ESI Scheme

The ESI scheme provides several social security benefits to insured employees and their families. These benefits include:

  1. Medical Benefit: Insured persons and their family members are entitled to full medical care from the day they enter insurable employment. There is no upper limit on the expenditure for their treatment.
  2. Sickness Benefit: Sickness benefit is payable to insured workers in the form of compensation in cash at the rate of 70% of wages. This benefit is available for a maximum of 91 days in a year, provided the worker has contributed for a minimum of 78 days in a 6-month contribution period.
  3. Extended Sickness Benefit: Sickness benefit can be extended up to two years for 34 long-term and malignant diseases. The benefit is provided at an enhanced rate of 80% of wages.
  4. Enhanced Sickness Benefit: Insured persons undergoing sterilization are eligible for full wage payment for seven days (fourteen days for male and female workers), known as enhanced sickness benefit.
  5. Maternity Benefit: Maternity benefit is payable for a period of 26 weeks and can be extended by an additional month on the advice of a medical officer. To be eligible for the extended benefit, the employee must have contributed for at least 70 days in the preceding two contribution periods.
  6. Disablement Benefit: Temporary disablement benefit is payable to employees from the first day of entering insurable employment, regardless of having paid any contribution. The benefit is provided as long as the disability continues at a rate of 90% of wages. Permanent disablement benefit is paid in the form of monthly payments at a rate of 90% of wages, depending on the extent of loss of earning capacity certified by a Medical Board.
  7. Dependents Benefit: In cases where death occurs due to occupational hazards or employment injury, dependents of a deceased insured person receive a monthly payment at a rate of 90% of the wage as dependents' benefit.
  8. Other Benefits: The ESI scheme also provides additional benefits such as funeral expenses, confinement expenses, vocational rehabilitation, physical rehabilitation, and old age medical care.

ESIC Code Format and Significance

The ESIC code is a 17-digit unique identification code assigned to companies and establishments. Each digit in the code represents specific information about the organization. Let's break down the format and significance of the ESIC code:

  1. The first two digits represent the region in which the company is situated or established. For example, 31 represents Mumbai, and 52 represents Hyderabad.
  2. The next two digits indicate the main region code, which represents the region in which the regional office is situated.
  3. The following digits represent the unique company code, which can have a maximum of six digits.
  4. The next three digits indicate the number of branches the company has.
  5. The final four digits denote the type of business activity in which the company is involved.

The ESIC code helps in identifying and categorizing companies and establishments for administrative and regulatory purposes.

ESI Registration for Startups

Yes, the ESI Act applies to startups and every corporate or registered organization employing 10 or more workers/employees (20 in certain states or union territories) with wages up to ₹21,000 per month. Startups meeting these criteria are required to register under the ESI Act to avail the benefits and comply with the legal requirements.

Mandatory Payment of ESIC

The Employees' State Insurance Corporation (ESIC) has made it mandatory for workers in the organized sector to contribute to the scheme. The threshold limit for mandatory coverage was raised to ₹21,000 per month from the previous limit of ₹15,000 per month. This provision came into effect on October 1, 2016, and expanded insurance coverage to an additional 5 million employees, bringing the total number of insured persons under the ESIC pool to over 30 million.

Individuals currently insured, whose salary exceeds ₹21,000 per month as a result of the proposed salary hike, are allowed to continue under the ESIC scheme. The Union labor ministry has also proposed extending provident fund, pension, and insurance benefits to the entire working population of the country by 2030.

ESIC Contribution Deduction from Salary

ESIC is deducted from the gross salary of eligible employees. The deduction consists of 1% from the employee's contribution and 4% from the employer's contribution. All eligible employees whose salary falls within the ceiling of ₹25,000 per month contribute 1% of their salary, while employers contribute 4% to the ESI contribution fund.

Withdrawal of ESI Amount

ESI is an insurance scheme for people below a certain income level, providing them with excellent medical care free of cost for themselves and their families. The ESI deduction is a premium paid towards such insurance, and individuals cannot withdraw the amount contributed.

How to Claim ESIC Benefits

To claim benefits under the ESIC scheme, employees or their dependents must fill out specific forms according to the benefits they are seeking. Here is a list of the various forms for different benefits:

  1. Form-15: This form is used to claim dependent benefits provided by the ESIC scheme. Users are required to read the form and fill it out as per the given instructions.

Employees can submit these forms and relevant documents to the ESIC branch office to claim their entitled benefits.

In conclusion, the Employees' State Insurance (ESI) Scheme provides crucial financial and medical assistance to employees and their families in times of need. The scheme covers a wide range of benefits, including medical care, sickness benefits, maternity benefits, disability benefits, and more. Employers and employees alike can benefit from the provisions of the ESI Act, which relieves employers of certain liabilities and provides tax exemptions. To avail the benefits, employers must register under the ESI Act, and employees must contribute to the scheme. By understanding the registration process, procedure, and benefits of the ESI scheme, individuals can ensure the well-being and financial security of themselves and their families

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

The Employees' State Insurance (ESI) Scheme is a social security and health insurance scheme implemented by the Government of India to provide medical and cash benefits to employees and their dependents in case of sickness, maternity, disablement, or death due to employment-related injuries.

Employees earning a specified wage threshold and working in establishments covered under the ESI Act are eligible for benefits under the ESI Scheme. Both permanent and temporary employees are covered, subject to certain criteria.

Employers must register their establishments and eligible employees with the ESI Corporation within 15 days of the ESI Act becoming applicable to them. They can do so by submitting Form 01 to the nearest ESI office along with required documents.

Once registered under the ESI Scheme, eligible employees receive an ESI card containing their unique insurance number. Employers facilitate the issuance of ESI cards to their employees by submitting the necessary details and documents to the ESI authorities.

The ESI Scheme offers a range of benefits, including medical benefits for indoor and outdoor treatment, cash benefits during sickness, maternity benefits, disability benefits, and dependent benefits in case of an employee's demise due to employment-related injuries.

Both employers and employees contribute to the ESI Scheme. The employer's contribution is a percentage of the employee's wages, while the employee's contribution is a fixed percentage of their wages. These contributions are subject to periodic revisions by the government.

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