The ESIC (Employees' State Insurance Corporation) is a state-run organisation formed as a result of the Employee State Insurance Act of 1948. The primary objective of the ESIC is to provide social security to the majority workforce who belong to the organised sectors. The ESIC acts as an insurance agent offering various benefits to employees who earn below Rs. 25,000 per month. The unique feature of the ESI is that the benefits not only cover the insure (employee) but can also be availed by his/her family members.  

Here, in this guide, we explain the basics of the ESIC Organisation – what it is, how it works, benefits offered, features, and more.

What is the ESI Scheme? 

The ESIC (Employees State Insurance Corporation) is the statutory body that oversees the ESI (Employees’ State Insurance) scheme. The ESI scheme was enacted by the Employees’ State Insurance Act of 1948. It’s a social security scheme that is designed to provide protection to employees during periods of inability. 

For instance, if an employee is sick, injured, disabled, or suffers a fatal death at work, the scheme extends medical care to the insured as well as his/her family. To explain it in simple terms, employees who are registered under this scheme can avail of medical and financial assistance during periods of difficulty.

Financial assistance acts as a replacement for income during tough times like the loss of pay, loss of work, etc. On the other hand, medical support helps employees (and their families) avail quality medical care at reputed hospitals.

It is a self-financing scheme. Meaning, the funds for the premiums are made by both the employees and employers. The contributions are generally deducted from the monthly wages of the employee. 

Additioanl Reading: What is the Public Provident Fund (PPF) Scheme?

How does it work? 

The main objective of the ESIC is to provide financial and medical assistance to beneficiaries during periods of inability like sickness, injury due to employment, maternity, etc. 

The ESIC works similar to an insurance company. They collect funds as premiums from the employee (also contributed by the employer). The employee can then avail of various benefits from the scheme, not just for themselves but also for their family members. Just like the provident fund, contributions to the ESI are made by both the employee and employer.

Who is eligible for the ESI scheme? 

An employee whose salary does not exceed Rs. 21,000 per month is eligible to be covered under the ESI scheme, as per the ESI Act of 1948. Employees of factories and other workplaces having 10 or more employees with wages up to Rs. 21,000 are eligible for the health benefits under the ESI scheme. 

If an employee's wages fall under this limit, a certain amount of his/her income is deducted monthly for contribution to the ESI scheme. Besides the employee contribution, the employer contributes a specified amount (a fixed percentage of the monthly wages) to the plan.

If an employee earns a daily wage of Rs. 137 or less, he/she need not contribute to the ESI scheme. However, he/she is still eligible for receiving the medical benefits as the employer continues making the contributions to the plan.

Split-up of ESI Contributions 

As mentioned above, ESI is a self-financing scheme. The contributions consist of two components:

  • Employee’s contribution

  • Employer’s contribution 

On 13th June 2019, the government of India released a press note that reduced the rate of contributions under the ESI Act. These are the revised rates effective from 2nd July 2019. 

Percentage of Contributions Previous Revised
Employer 4.75% 3.25%
Employee 1.75% 0.75%


Key Features and Benefits of ESI

As per the ESI Act of 1948, the IP (Insured Person) is eligible to receive the following benefits. 

  • Medical Benefits 

An insured person and his/her family is entitled to reasonable medical care, clinical investigation, and comprehensive medical care. Medical benefits come into effect from day one of employment.

Furthermore, Rule 60 of the ESI Act states that a person who is retired due to permanent disablement as a result of an injury sustained during employment is eligible for medical treatments. This person can avail of the medical benefits by paying Rs. 120 annually for self and spouse.

Similarly, under Rule 61, an IP who retires due to voluntary retirement or premature retirement is also eligible for medical care on paying Rs. 120 annually for self and spouse. 

  • Disability Benefit 

If an employee is disabled due to work injury, the ESI scheme ensures that the employee receives his/her monthly wages during recuperation after a temporary disability. In the case of permanent disability, the employee continues to receive monthly salaries for the rest of his/her life.

  • Maternity Benefits 

The ESI scheme also offers financial assistance during the maternity period of female employees. The plan provides 100% of the daily wages for 26 weeks, from the time the employee goes into labour. For miscarriages, the scheme pays 6 weeks of daily wages. In the event of adoption, the female employee receives 100% of the daily wages for 12 weeks.

  • Sickness Benefit 

The ESI scheme ensures that the IP and his/her family do not suffer from a cash flow crisis when the employee is on medical leave. 70% of the daily wages are paid for medical leaves up to 91 days. The benefits are paid in two successive instalments.

  • Unemployment Allowance 

ESI offers employees who have lost their jobs involuntarily with a monthly cash allowance for a maximum of 2 years (24 months).

  • Dependent’s Benefit 

In the unfortunate case of the employee meeting an untimely death at the workplace, the ESI offers monthly payments for the surviving dependants. 

Besides the benefits listed here, the ESI offers various other benefits like:

  • Confinement expenses

  • Physical rehabilitation

  • Funeral expenses

  • Skill up-gradation under the RGSKY (Rajiv Gandhi Shramik Kalyan Yojana) 

  • Vocational training, etc. 

Contribution Periods and Benefit Periods under the ESI Scheme 

The contribution and benefit periods under the ESI scheme are defined as follows:

Contribution Period Cash Benefit Period
1st April to 30th September 1st January to 30th June of the subsequent year
1st October to 30th March 1st July to 31st December of the following year


Let’s state that the salary of an employee increases from Rs. 20,000 to Rs. 23,000 from June 2020. The employee must continue with his/her contributions to the ESI scheme until September of this year. The employee need not make any contributions after 30th September. However, as per the benefits period, the employee continues to receive the benefits until 30th June 2021. 

Who are the employers who must register for the ESI scheme? 

As per the ESI Act, all factories with 10 or more employees must register for the ESI scheme. Besides factories, the ESI scheme is also applicable to other workplaces that employ 10 or more employees. It includes:

  • Restaurants and hotels 

  • Shops and commercial establishments

  • Cinema halls

  • Newspaper establishments that do not come under factory 

  • Road transport organisations, etc. 

  • Private schools, colleges and other educational institutions run by societies, trustees, and individuals

  • Medical institutions like diagnostic centres, nursing homes, privately owned hospitals, pathological labs, etc. 

The minimum number of employees for an establishment to be registered under the ESI Act varies from state to state. 

  • Minimum requirement of 20 employees is applicable in states and UTs like Jammu & Kashmir, Ladakh, Himachal Pradesh, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tamil Nadu, Uttar Pradesh, Arunachal Pradesh, Assam, Goa, Chandigarh, Diu and Daman, Dadra and Nagar Haveli, Andaman and Nicobar, and Lakshadweep. 

  • The minimum requirement of 10 employees is applicable in states and UTs like Jharkhand, Kerala, Orissa, Pondicherry, Punjab, Rajasthan, Tripura, Delhi, Karnataka, West Bengal, Andhra Pradesh, Telangana, Bihar, Chhattisgarh, Gujarat, Haryana, and Uttarakhand. 

Is it mandatory for all employers to register under the ESI Act? 

Yes. All factories and establishments with 10 or more employees must register for the ESI Act of 1948. The employers must register for the scheme within 15 days of commencement of operation. 

Can an employer exit the ESI scheme if the number of employees falls below the prescribed limit? 

No. Once an employer is registered for the ESI Act, the employer continues to be part of the act. This is irrespective of whether:

  • The number of employees falls below the prescribed limit.

  • There is a change in the nature of the establishment/factory.

Can an employee stop contributions to the ESI scheme if his/her salary exceeds Rs. 21,000? 

When an employee's salary increases above Rs. 21,000 limits, he/she must continue with contributions to the scheme until the end of the contribution period.


ESI – A Beneficial Social Security Scheme for Employees 

The ESI acts as a beneficial social security scheme to employees, providing them medical and financial assistance during tough periods. Unlike the PPF scheme, employees do not have to wait until retirement to enjoy the plan's benefits. They can avail of various benefits right during their period of employment.