The Employees' State Insurance Act, 1948 creates a contributory medical and disability insurance scheme for low-wage Indian workers. For a foreign-owned tech subsidiary with mostly senior engineers above the wage ceiling, the ESI footprint is small — but it isn't zero. Any administrative staff, junior engineers, interns or office support typically falls under it.
When ESI applies to your subsidiary
- Establishment trigger: 10 or more employees on payroll (including office support, drivers, security if employed directly).
- Geographic trigger: the establishment must be in a notified area under the ESI Act. Almost all urban India is notified — Bengaluru, Mumbai, Delhi NCR, Hyderabad, Chennai, Pune, Kolkata are all covered, as are most tier-2 cities. A handful of remote regions remain non-notified.
- Employee trigger (per employee): the employee must be earning at or below the ESI wage ceiling. The current ceiling is ₹21,000 per month (₹25,000 for disabled employees) — anyone above is excluded from ESI automatically.
The contribution rates
| Component | Employee share | Employer share | Total |
|---|---|---|---|
| ESI contribution (post-2019 rate cut) | 0.75% of gross wages | 3.25% of gross wages | 4.0% of gross wages |
Contributions are computed on the full gross wages (Basic + HRA + allowances + bonus paid in the month + overtime). Unlike PF, the wage base is gross, not just Basic.
Your consultant flags ESI eligibility per employee
FastLegal's payroll consultant identifies which of your employees fall under ESI per month — this changes when an employee crosses the ceiling mid-year due to a raise, or when overtime takes them above the ceiling for a single month. The exclusion is applied correctly so you don't over-contribute or under-contribute.
Monthly contribution cycle
ESI works on a half-yearly contribution period (April-September, October-March). Employees included in ESI on the 1st of any month stay included for the entire contribution period, even if their salary crosses the ceiling mid-period due to a raise. Their exclusion takes effect from the next contribution period.
- Compute gross wages for each ESI-eligible employee.
- Deduct 0.75% from the employee's payslip.
- Add 3.25% as the employer's contribution.
- Generate the monthly contribution challan on the ESIC portal.
- Remit by the 15th of the following month via the integrated bank gateway.
- Generate the Contribution Period Return at the end of each half-year.
The Insurance Person (IP) card
Each ESI-covered employee receives an IP card (now digital — Aadhaar-linked) that they use to access ESI medical benefits: free OPD, hospitalisation, maternity care, sickness benefit and disability pension. The card is generated on the ESIC portal when the employee is first registered.
For foreign-owned subsidiaries, the IP card is often a paper-only formality because senior engineers above the ceiling don't access ESI hospitals — they use the group medical insurance the employer provides. Still, the card must be issued for every covered employee at registration.
What employees actually get under ESI
- Free outpatient medical care at any ESI dispensary or hospital.
- Cashless inpatient hospitalisation at ESI hospitals (and empanelled private hospitals for specialised treatment).
- Sickness benefit — up to 70% of average daily wages for up to 91 days per year of certified sickness.
- Maternity benefit — full daily wages for 26 weeks (extended for adoption / commissioning mothers).
- Disability benefit — temporary or permanent disablement pension if injury arises out of and in the course of employment.
- Dependents' benefit — pension to spouse and children if the employee dies of an employment injury.
- Funeral expense — flat sum on death.
Practical tips for foreign employers
- Run ESI on a per-employee basis — don't make a blanket decision. The same payroll cycle can have some employees in ESI and others out.
- When you give a raise that pushes an employee above the ceiling, continue ESI till the end of the current contribution period (Sept or Mar). Stop in the next period.
- For employees rotating in from intern → FTE, watch the wage change in the joining month. Mid-month crossings are governed by contribution-period rules.
- Don't double-cover with private medical insurance for ESI-eligible employees thinking it's optional. ESI is statutory; you can still provide group medical insurance on top for richer benefits.
- If your office is in a non-notified area, document it. ESIC inspectors sometimes claim retrospective coverage that has to be defended.
Frequently asked questions
Can we skip ESI for an employee who already has private health insurance?+
No. ESI is statutory and cannot be opted out of by the employee or employer. Private insurance on top is optional and additional.
What happens if we don't register for ESI when required?+
Retrospective coverage with the full employee + employer contributions for the past period, plus 12% interest p.a., plus damages of 5-25% on the late contributions. Inspectors levy all three.
Is the ESI ceiling likely to rise?+
It rises periodically — the last hike was from ₹15,000 to ₹21,000 in 2017. Industry expects another revision in the next 2-3 years to ₹25,000-30,000. Budget for the contribution base expanding.
Do contractors fall under ESI?+
Genuine independent contractors invoicing you as professionals — no. Workers placed on your premises by a contractor (security, housekeeping) — yes, the principal employer (you) is jointly responsible if the contractor defaults. Check your contractor agreements for ESI indemnity.
Stop reading circulars. Start running clean payroll.
Every FastLegal plan ships with a dedicated payroll consultant — a real human who runs your PF, ESI, PT, TDS and Form 16 issuance, configured to your salary structure, your state, and your hiring plan. You sign off. We do the rest.