Employee’s State Insurance Scheme

This scheme of ESI is a kind of contributory fund. By this fund, it enables the Indian employees to participate in a self-financed, healthcare insurance fund. For this, there are contributions from both the employee and their employer. This ESI scheme is managed by Employee’s State Insurance Corporation. This insurance corporation is a government entity and is a self-financing, social security, and labour welfare organization.

The ESI scheme is regulated as per the rules mentioned in the Indian ESI Act of 1948. ESI is a social insurance scheme among employees. By this scheme, employee interest protects some uncertain events such as temporary or permanent physical disability, sickness, maternity, injury during employment, and more. It provides both cash benefits and healthcare benefits.

Eligibility for ESI

Under this ESI scheme, it applies to all types of establishments, including corporates, factories, restaurants, cinema theatres, offices, medical and other institutions. Such units are called Covered Units.

Criteria for Covered Units

a) Criteria is that all units that are covered under Factory Act, Shops Act, and Establishment Act are eligible for this scheme called ESI.

b) In this10 or more people must be employed irrespective of their monthly salary. And this limit on the number of employees depends upon the state and their eligibility for the ESI scheme.

Identification of eligible employees

a) The employees mentioned in the covered unit, those whose monthly incomes salary does not exceed Rs. 21,000 per month and this salary exclude overtime, bonus, leave encashment, etc., who are eligible to avail of benefits under this Scheme.

b) Whose daily average wage is up to Rs.176 are exempted from ESIC contribution.

c) Employers will contribute their share for these employees.

Applicability of salary

a) This ESI contribution is generally calculated on the employee’s gross monthly salary.

b) There are a lot of people who face challenges in understanding ESI deduction rules. This is so because they aren’t clear about the concept of Gross Salary. So one should know that a gross salary is described as a total income earned by the employee, this income is while working in their job, so before any deductions are made for the reasons like health insurance, social security, federal taxes, etc.

ESI calculation:

The gross monthly salary does not include an Annual bonus, retrenchment compensation, leave, and gratuity.

ESI Calculations

Employee Provident Fund:

This is one of the key schemes that help employees build a sizable retirement. This scheme was introduced in 1952 and the sole purpose was for the welfare of employees. Governance of this scheme is by the Employees Provident Fund Act 1952. The management is done by the Employees’ Provident Fund Organization also called EPFO. Under this scheme EPF both employer and employee contribute equally to the EPF account.

The responsibility lies with the employer to deposit the whole amount to the EPF account. The amount is deducted by the employee’s share from their monthly salary. For EPF transfers, one should have a Universal Account Number that is allotted by the EPFO.

This UAN number acts as an umbrella for multiple Member IDs allotted to an individual by different employers, this is to link multiple IDs of an individual under a unique number itself. This scheme is applied to all the establishments that have employed a minimum of 20 people with them.

Within 1 month of attaining the number, there is a need that the business must obtain EPF registration. Any business having less than 20 employees can also go for voluntary registration in EPF.

Rules related to Employee Provident Fund (EPF):

a) This scheme Employee Provident Fund is the same as the ESI scheme. It is a Contributory fund with contributions from both the employee and their employers.

b) As the ESI scheme focus is on healthcare, the focus of Provident Fund is on post-retirement Income and Benefits.

c) This EP fund is a compulsory and contributory fund in nature for Indian organizations. It is under The Employees’ Provident Fund and Miscellaneous Provisions Act of 1952.

Contribution of employee and employer to the Employee Provident Fund

In this case, the contribution is equal between the employee and the employer. The amount of 12% of the monthly salary of the employee. In the case of employees, they can contribute more than 12% of their salary voluntarily. But the employer is not bound to contribute extra. Salary comprises of fewer components for PF:

  • Basic wages,
  • Dearness Allowances (DA),
  • Conveyance allowance and
  • Special allowance.

The maximum amount of Rs 1,800 is restricted by employers. In the case where the employee’s salary exceeds Rs 15,000, then the employer will contribute only Rs 1,800.

Types of EPF:

Some of the statutory compliance associated with PF contribution is:

There are equal contributions by the employee and employer. Two separate funds are:

Implementation of Rules for ESI and PF Deduction:

The Manual procedure of statutory compliances involves a lot of paperwork, this makes the process very time-consuming as well as can lead to inaccuracies and mistakes. Departments of both the ESI and PF encourage online filing and payments.

One should use automated payroll processing tools to calculate ESI, PF, and income tax deductions.

There is a need because good payroll software will put an end to the increased complexities and offers the following benefits:

a) Rate of accuracy in PF and ESI

b) Increasing transparency in payroll processing

c) Lesser queries from employees

d) Higher compliance

e) Lower load on payroll administrators


As mentioned that ESI is an Employee State Insurance also used as ESI and PF is Provident Fund or PF. Both are two social security schemes available to employees of India. Whereas ESI is the most prominent need that is based on social insurance schemes among employees.EPF is a Contributory fund with contributions from both the employee and their employers.