Glossary
What is ESI?
What Employees' State Insurance covers, who it applies to, and how the employee and employer contributions are worked out from gross pay.
Updated
In short
ESI is state-run health and cash-benefit insurance for lower-paid employees, funded by employee and employer contributions on gross pay. SimpleERP has no preset ESI component; you add it yourself as a percentage of gross.
ESI, Employees' State Insurance, is a social security scheme run by the ESIC that gives covered employees medical care and cash benefits during sickness, maternity and injury at work. It applies in covered establishments to employees whose gross pay is up to ₹21,000 a month, as notified. The employee contributes 0.75% of gross and the employer 3.25%.
ESI (Employees' State Insurance): a worked example
Muthu K, welder at Lakshmi Steel Furnitures, earns a gross of ₹19,500 a month, under the ₹21,000 limit. Rates are as notified; check the current rules.
| Line | Rate | Amount |
|---|---|---|
| Gross pay | ₹19,500 | |
| ESI, employee (deducted from pay) | 0.75% of gross | ₹146.25 |
| ESI, employer (paid on top) | 3.25% of gross | ₹633.75 |
| Total ESI for the month | ₹780 |
FAQ
Questions, answered
Who is eligible for ESI?
Employees of covered establishments whose gross monthly pay is up to ₹21,000, as notified, with a higher limit for persons with disability. Coverage depends on the business's headcount and location. Check the current rules on the ESIC website or with your CA.
What happens when an employee's pay crosses ₹21,000?
ESI rules use contribution periods, so an employee covered at the start of a period generally stays covered until it ends, even after a raise. Check the current rules before removing the ESI lines from a structure.
How do I set up ESI in SimpleERP?
Add two salary components: an ESI deduction at 0.75% of gross and an ESI employer contribution at 3.25% of gross, each with its payable account. Add them to the structures of covered employees only, since SimpleERP does not check the wage limit.
Does SimpleERP file ESI returns?
SimpleERP does not file ESI returns. It deducts ESI on the payslip, posts both shares to the payable account set on the ESI components on approval and totals them in the component summary report. Filing contributions and paying the ESIC are done on the ESIC portal.
Related
Keep reading
Statutory deductions
Deductions from salary required by law, such as PF, ESI, professional tax and TDS, held as liabilities until paid.
Read moreProvident fund (PF)
A retirement saving run by the EPFO, funded by matching employee and employer contributions, commonly 12% of Basic each.
Read morePayroll
Salary structures, monthly runs and payslips with PF, PT and TDS, posted to the books.
Read more
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