ESI Calculation on Salary: Rates, Ceiling and Examples

ESI calculation on salary is simple once you know three things: who is covered, which wages count, and how contribution periods lock coverage in place even when pay rises. The Employees' State Insurance scheme, run by ESIC, gives covered employees medical care, sickness benefit, maternity benefit and disablement benefit in exchange for a small monthly contribution from employee and employer. This guide covers the current rates, the ₹21,000 ceiling, the wages to include, rounding, and worked examples you can match against your payroll register.

ESI Applicability: Establishments and Employees

Establishments

ESI applies to factories and to notified establishments (shops, hotels, restaurants, cinemas, road transport, newspapers, educational and medical institutions and others) employing 10 or more persons, in areas where ESIC has notified implementation. Under the Code on Social Security, the scheme continues with its coverage thresholds, and the government can extend it to establishments with fewer employees in hazardous work. Check whether your district is notified.

Employees

An employee is covered if their gross wages are ₹21,000 a month or less (₹25,000 for persons with disability). The test is applied at the start of each contribution period, not every month.

ESI Rates

Contributor	Rate	Base
Employee	0.75%	Gross wages paid in the month
Employer	3.25%	Gross wages paid in the month
Total	4%

Employees whose average daily wage is up to ₹176 are exempt from the employee share; the employer still pays 3.25%. These rates have been in effect since July 2019. Verify on the ESIC site before configuring payroll in case of revision.

The ₹21,000 general ceiling is the one most payroll teams work with. For persons with disability the notified ceiling is higher (₹25,000 as last notified), so record disability status in the employee master and check the current figure.

What Counts as Wages for ESI

ESI is calculated on gross wages, which is broader than PF wages. Include:

Basic, DA, HRA, special allowance, conveyance and city compensatory allowance.
Overtime payments.
Incentives and commission paid regularly.
Payments for leave periods, holidays and lay-off.

Exclude:

Employer contributions to PF, pension or ESI.
Travelling allowance for actual travel and reimbursement of expenses incurred for work.
Gratuity and retrenchment compensation.
Annual bonus paid once a year (regular monthly or quarterly incentives are generally included).

Overtime is included in contribution but is not counted when testing eligibility against the ₹21,000 ceiling. This distinction trips up many teams.

Contribution Periods and Why Coverage Sticks

ESIC uses two contribution periods each year:

Contribution period	Corresponding benefit period
1 April to 30 September	1 January to 30 June of the next year
1 October to 31 March	1 July to 31 December of the next year

If an employee is covered at the start of a contribution period and their wages rise above ₹21,000 during that period, contributions continue on actual wages until the period ends. Exit happens from the next contribution period.

Example

Ravi earns ₹19,500 in April and gets an increment to ₹23,000 from July. He remains covered until 30 September and contributions are deducted on ₹23,000 for July, August and September. From 1 October he is out of ESI.

Rounding Rule

ESIC rounds each contribution up to the next higher rupee. Calculate employee and employer shares separately and round each upward. A payroll system that rounds to the nearest rupee will under-pay by a rupee for some employees, which shows up as a mismatch on the portal.

Worked Example 1: Standard Monthly Calculation

Sneha's gross monthly wages are ₹18,000.

Employee share: 0.75% × ₹18,000 = ₹135.
Employer share: 3.25% × ₹18,000 = ₹585.
Total remitted: ₹720.

Worked Example 2: Rounding Up

Imran's gross wages are ₹15,500.

Employee share: 0.75% × ₹15,500 = ₹116.25, rounded up to ₹117.
Employer share: 3.25% × ₹15,500 = ₹503.75, rounded up to ₹504.
Total: ₹621.

Worked Example 3: Overtime

Lakshmi's fixed gross is ₹20,000 and she earns ₹3,000 overtime in October.

Eligibility test: fixed wages of ₹20,000 are within ₹21,000, so she is covered (overtime ignored for the test).
Contribution wages: ₹23,000.
Employee share: 0.75% × ₹23,000 = ₹172.50, rounded up to ₹173.
Employer share: 3.25% × ₹23,000 = ₹747.50, rounded up to ₹748.

Worked Example 4: Low-Wage Employee Exempt from Employee Share

A housekeeping staff member earns ₹4,400 for 26 days of work in a month, an average daily wage of about ₹169. As this is within ₹176, there is no employee deduction. The employer pays 3.25% × ₹4,400 = ₹143.

Sample Payslip Lines

Earnings	₹	Deductions	₹
Basic	10,000	Employee PF (12% of ₹10,000)	1,200
HRA	4,000	Employee ESI (0.75% of ₹18,000)	135
Special allowance	4,000	Professional tax	As per state
Gross	18,000

Note that PF here is on ₹10,000 of basic. Under the Code on Wages, check that basic plus DA is at least 50% of total remuneration; in this layout it is 55.6%, so no add-back applies. See our guide on how to calculate PF on salary for the PF side.

What Employees Get in Return

Explaining ESI benefits helps employees accept the deduction. The main benefits are:

Benefit	What it covers
Medical benefit	Treatment for the insured person and family at ESIC dispensaries, hospitals and tie-up hospitals, from the day of joining
Sickness benefit	Cash benefit during certified sickness, at a prescribed percentage of wages for a limited number of days a year
Maternity benefit	Cash benefit at full wages for the prescribed maternity period
Disablement benefit	Monthly payment for temporary or permanent disablement from employment injury
Dependants' benefit	Monthly payment to dependants on death from employment injury
Unemployment allowance	Cash support for a limited period under the scheme for insured persons who lose employment, subject to conditions

Eligibility for cash benefits depends on contributions paid in the relevant contribution period, which is one more reason to pay on time. Exact percentages and durations are set by ESIC regulations; check the current figures before quoting them to employees.

ESI for Contract Workers and the Principal Employer

If you engage workers through a contractor at your premises, those workers are covered by ESI if they meet the wage ceiling. The contractor should register them and pay contributions, but the principal employer is liable if the contractor defaults, and can recover the amount from the contractor. Good practice:

Require the contractor's ESI code in the contract.
Ask for monthly challans and the list of covered workers before releasing contractor invoices.
Match the headcount on the challan to your gate or attendance records.
Withhold payment where proof is missing, as permitted by the contract.

Under the Code on Social Security, these principal-employer responsibilities continue, so the checks are as important as before.

Registration, Filing and Due Dates

Employer registration: within 15 days of the Act becoming applicable, on the ESIC portal.
Employee registration: on or before the date of joining; generate the insurance number (IP number) and the e-Pehchan card.
Monthly contribution: file and pay online by the 15th of the following month.
Returns: monthly online filing has replaced the old half-yearly return. Keep registers and records as prescribed.
Accident reporting: report employment injuries promptly through the portal.

Late payment attracts interest (12% per annum as last prescribed) and damages that rise with the length of delay; check the current schedule.

Common ESI Mistakes

Testing eligibility every month instead of at the start of the contribution period, which drops employees early.
Including overtime in the eligibility test.
Calculating on basic only instead of gross wages.
Rounding to the nearest rupee instead of up.
Not registering contract workers employed through a contractor at your premises, for whom the principal employer is liable if the contractor defaults.
Missing the exemption for low-wage employees and over-deducting.

Monthly ESI Checklist for Payroll Teams

At the start of April and October, list every employee whose fixed gross is ₹21,000 or less and confirm coverage for the new contribution period.
Register new joiners on or before the joining date and record the IP number in the employee master.
Include overtime and regular incentives in contribution wages, but not in the eligibility test.
Apply the low-wage exemption from the employee share where the average daily wage is within the limit.
Round both shares up to the next rupee.
File and pay by the 15th of the following month and download the receipt.
Collect contractor ESI challans for contract workers before releasing contractor payments.
Reconcile ESI deducted in the payroll register with the amount paid on the portal.

A short monthly reconciliation catches most of the issues that otherwise surface months later as employee complaints about denied benefits.

ESI in Fininvo Payroll

Fininvo Payroll calculates ESI from configured wage components and produces ESI returns and PF/ESI reports, which helps keep contribution periods and rounding consistent month to month. Explore India payroll and payroll reports.

Frequently Asked Questions

What is the ESI limit for salary?

Employees with gross wages up to ₹21,000 a month are covered (a higher limit applies to persons with disability). Coverage continues until the end of the contribution period even if wages rise above the limit.

Is ESI deducted on gross or basic salary?

On gross wages, which include allowances and overtime but exclude employer contributions, travel reimbursements, gratuity and annual bonus.

What is the due date for ESI payment?

The 15th of the month following the wage month.

Can an employee opt out of ESI?

No. If covered, contributions are mandatory. An employee may have private health insurance in addition, but it does not replace ESI.

Is this advice?

This is general information as of late 2026, not legal advice. ESIC notifications change ceilings and rates from time to time; check the latest before applying.