ESI wage ceiling

Employees’ State Insurance or ESI is the insurance which provides medical care to industrial workers and other employees. You can use this insurance 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.

ESI wage ceiling for past 20 years

ESI wage ceiling for past 20 years

Impact of increase in the ESI wage ceiling:

  • 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. 25,000 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 the impact of this change is a financial one.

The ESI notification of the amendment is here: Find the notification here.

P. S: For users of our Saral PayPack Software, we have updated the ESI rates to the latest ceiling. Please ensure you are using the more recent version of the software.

If you are not a user, you can try our software for free. Do check it out.

Image made with the help of icons from Freepik, licensed under CC 3.0 BY

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5 thoughts on “The new ESI wage ceiling – Applicability and Impact

  1. If a particular employee gross salary will be above 21000, (Out of ESI) in that case we are not deducting ESI. Due to absence/LOP his gross will be below 21000( Less than 21000) can we start deduction for further months (April to Sep) (oct to Mar).
    Can you help

  2. Hi
    If ALL employees salaries are Above Rs 21, 000 , do we have to register under ESI act ?
    And file NIL return? Or can we seek exemption?

    Number of employees are exceeding 20 .

    1. Hi Joy,
      Yes, the registration is mandatory once you cross 10 counts (except few). But no return is required to be filed except there is any employee having less than Rs. 21000 gross salary.

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