Employees’ State Insurance or ESI is the insurance which provides medical care to industrial workers and other employees. This insurance can be used in case of sickness, maternity, injury and other medical-related matters.
The ESIC has now increased the wage limit for ESI Act to Rs 21,000. The wage ceiling was last raised in May 2010. Back then, the wage limit was increased from Rs 10,000 to Rs 15,000. Now the wage limit has been raised to Rs 21,000. This brings it in line with the wage limit for the Payment of Bonus Act.
Impact of increase in the wage ceiling for ESI:
- The increase in the wage ceiling for ESI from Rs 15,000 to Rs 21,000 means that an employer makes contributions for more number of employees earning between this limit. The important factor to decide whether an employee covers under the ESI Act is whether the employee’s monthly ‘wages’ exceeds Rs 21,000.
- The wages here mean an employee’s gross earnings. I.e., The total of all earning heads.
- The increase in wage ceiling impacts the finances of the employees. For the ESI Scheme contributions are made from both employers (4.75%) and employees (1.75%). So, the take-home salary of employees earning between Rs 15,000 to Rs 21,000 decreases as the employee contribution of 1.75% deducts from their salaries.
- Once an employee starts earning a wage of more than Rs 21,000, ESI contributions will be made only till the end of the contribution period. It is a 6-month period.
- For E.g.: Consider that an employees’ gross earning is Rs. 20, 000 in the month of April. In the month of July, that person gets an increment which leads him out of ESI coverage i.e, salary increases to Rs. 25,000.
- In this case, the employee will continue to contribute 1.75% for ESI on Rs. 21, 000 from July to September. From the second half of the year i.e., October to March there will be no contribution towards ESI.
With the rise in the wage threshold, about 3.5 million employees will now fall under the ESI Act. From a company’s perspective, we see that impact of this change is a financial one.
The ESI notification of the amendment can be found below.