What Is ESI in Salary?

ESI refers to the Employees' State Insurance scheme of India. Introduced in 1952, the ESI was developed to protect the welfare of Indian employees. Through paycheck contributions, the ESI offers benefits in Social Security and health insurance for both employees and their dependents. Both employees and their employers share in ESI contributions, with amounts determined by a fixed percentage of each employee's salary.

The ESI Act of 1948 opened the door for workers' benefits across India. Within four years, the ESI scheme was introduced. Initially, the scheme was offered to industrial factory workers in the cities of Kanpur and Delhi. Factory workers represented a group of employees at high risk for occupational hazards, temporary disability and other benefits the ESI scheme offered. At the time of publication, the ESI scheme has grown to encompass Indian workers in several cities and occupational fields across the country.

The ESI scheme serves two primary roles for Indian workers. As an insurance package, it provides workers and their dependents with health insurance and medical care. It also protects workers against injury, sickness and work-related hazards that may cause a worker to miss work time. The other function of the ESI scheme is to provide supplemental payments to workers and their families when work is missed as a result of disability, death or an injury sustained on the job.

As of 2011, contributions made to the ESI scheme are based on a fixed rate of the employee's salary. The scheme requires a 1.75 percent contribution from the employee and a 4.75 percent contribution made by the employer. Combined, the ESI scheme contributions total 6.5 percent of each employee's salary. Contributions are made at the time of each paycheck. Low-income earners, which include those whose wages total 70 rupees or less per day, are exempted from making the employee contribution.

ESI benefits are funded with contributions made prior to the commencement of the benefit period. The calendar year is broken down into two benefit periods. The first period is funded from April 1 to September 30, with benefits received on January 1 through June 30 of the subsequent year. The second benefit period is funded from October 1 to March 31, with benefits received on July 1 through December 31.