Employee State Insurance (ESI)
A social security scheme giving lower-wage employees access to medical care and cash benefits, funded jointly by employer and employee contributions.
What it is
The Employees' State Insurance (ESI) scheme, run by the Employees' State Insurance Corporation (ESIC) under the ESI Act, 1948, provides medical care, sickness benefit, maternity benefit, and disability or dependent benefits to employees earning at or below a specified wage ceiling. It operates as a self-financing social security and health insurance scheme for the organised workforce.
Who it applies to
ESI registration is generally mandatory for establishments employing 10 or more people (the threshold is 20 in a few states), and coverage applies only to employees whose gross monthly wages are at or below the scheme's wage ceiling. This ceiling is revised periodically by government notification, so it should be checked against the current ESIC circular rather than assumed fixed. A separate, higher ceiling applies to employees with disabilities.
How the contribution works
Both employer and employee contribute a percentage of the employee's gross wages toward ESI every month — the employer's share is larger than the employee's. These rates were last revised in 2019 and have held since, but like every statutory rate in this glossary, they're subject to change by government notification, so payroll systems should track the latest ESIC circular rather than a rate hardcoded once and forgotten.
Why it matters for payroll
Because ESI applicability is wage-linked, an employee can move in and out of coverage as their salary changes across a contribution period — a detail that trips up a lot of manual payroll processes. ESI returns and payments follow the same monthly deadline cycle as PF.