How is ESI calculated?

ESI is calculated as a percentage of an employee's monthly wages, with the employer and the employee each paying a share. You take the gross wages that count for ESI, apply the employee's contribution rate to get the employee's part, and apply the employer's contribution rate to get the employer's part. The two together are deposited by the employer. Because the rates and the wage threshold are set by the scheme and can change, confirm the current figures before you compute.

What is the wage limit for ESI?

ESI applies to employees whose monthly wages are at or below a threshold set by the scheme. If an employee earns within that limit, they are covered and contributions are due. If they earn above it, they generally fall outside ESI coverage. There are rules about what happens when someone crosses the threshold mid-period, so the coverage does not flip instantly. The exact threshold is revised from time to time, so always confirm the current figure.

Who pays more, the employer or the employee?

The employer pays a larger share of the ESI contribution than the employee. Both contribute a percentage of the employee's wages, but the employer's rate is higher, and the employer is also responsible for depositing the combined amount with the scheme. The employee's share is deducted from their salary, while the employer's share is an additional cost the employer bears on top of wages. The precise percentages are set by the scheme and can change.

What does ESI provide to employees?

ESI, the Employees State Insurance scheme, provides covered workers and their dependents with medical care and a set of cash benefits. These typically include medical treatment, sickness benefit during certified illness, maternity benefit, and benefits in cases of employment injury or disablement, among others. In exchange for the small monthly contribution, an employee gets access to this social security cover. The specific benefits and conditions are governed by the scheme's rules.

How does an employer deposit ESI?

The employer calculates each employee's contribution and its own share, deducts the employee portion from salary, and deposits the combined amount with the ESI scheme within the timeline the rules set, usually monthly. The employer also files the required returns. Depositing late can attract interest or penalties, so employers keep to the schedule. Payroll software helps by computing the split for every employee and preparing the figures needed for the deposit.

ESI Calculation: Contribution Rates and Rules (2026)

ESI, the Employees State Insurance scheme, is a social security system that gives covered workers access to medical care and a range of cash benefits in return for a small monthly contribution shared between the employee and the employer. For any business with staff on modest wages, getting ESI right is part of running payroll properly, because contributions are due every month and mistakes can mean penalties. This guide explains who is covered, the wage threshold that decides coverage, how the employer and employee contributions are worked out with clear examples, what the scheme provides, and how employers deposit the money. Because the rates and thresholds are set by the scheme and revised from time to time, treat the figures here as illustrative and confirm the latest before you compute.

What ESI is and who it covers

ESI is aimed at workers earning up to a wage threshold, giving them and their dependents medical cover and cash support when they cannot work due to sickness, maternity, or a workplace injury. It applies to establishments the scheme covers, and within those, to employees whose monthly wages fall at or below the threshold the scheme sets. The logic is that lower and middle-wage workers gain the most from pooled medical and income protection, so the scheme focuses there. If an employee earns above the threshold, they generally sit outside ESI. This threshold-based coverage is the first thing to establish for each person on your payroll.

The wage threshold that decides coverage

Coverage turns on the wage limit. An employee earning within the monthly threshold is covered and contributions are due; an employee earning above it is generally outside the scheme. The rules also handle the situation where someone crosses the threshold partway through a contribution period, so that coverage does not switch on and off unpredictably in the middle of a cycle. This continuity rule protects the employee's benefits. The exact threshold figure is set by the scheme and has been revised over the years, so before you decide whether a particular employee is in or out, check the current limit rather than relying on a number you remember.

How the contribution is worked out

ESI is a percentage of the employee's monthly wages, and it has two parts: the employee's share and the employer's share. The method is straightforward once you know the two rates:

Take the ESI wages: the gross monthly wages that count for the scheme.
Employee's share: apply the employee contribution rate to those wages. This is deducted from the employee's salary.
Employer's share: apply the employer contribution rate to the same wages. This is an extra cost the employer bears.
Total deposited: the employer adds both shares together and deposits the combined amount with the scheme.

The employer's rate is higher than the employee's, so the employer carries the larger part of the cost. The key point to remember is that both shares are calculated on the same wage figure, just at different rates.

Worked examples of the split

To show the method, take an illustrative case. Suppose an employee's ESI wages are 15,000 rupees for the month. Imagine, purely for the arithmetic, that the employee rate is 0.75 percent and the employer rate is 3.25 percent. You should confirm the actual current rates, but the method stays the same whatever the rates are.

Employee's share: 0.75 percent of 15,000 = 112.5 rupees, which is rounded per the scheme's rounding rule. Employer's share: 3.25 percent of 15,000 = 487.5 rupees. Total deposited by the employer: about 600 rupees for that employee for the month. The employee sees only their share deducted from salary, while the employer pays its larger share on top of wages.

Now take a second worker with ESI wages of 20,000 rupees. Employee's share at 0.75 percent is 150 rupees; employer's share at 3.25 percent is 650 rupees; the combined deposit is about 800 rupees. The pattern is the same, and the totals scale directly with wages, which is why payroll software simply applies the two rates to each person's wage figure and sums the result across the team.

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The contribution split at a glance

Using the illustrative rates above, here is how the split looks across a few wage levels. Treat the percentages as placeholders to show the shape of the calculation, and confirm the real rates before you run payroll.

The table makes the two facts clear: the employer always pays the larger share, and both shares move in proportion to wages. Swap in the current official rates and the same rows recompute cleanly.

What ESI provides in return

The contribution buys real cover. In broad terms, ESI provides covered employees and their dependents with medical care and several cash benefits. These typically include treatment through the scheme's medical network, sickness benefit that pays during a certified illness, maternity benefit for eligible women workers, and benefits where an employee suffers an employment injury or disablement, among others. For a worker on modest wages, this is meaningful social security: a small monthly deduction turns into access to medical treatment and income support at the times they are most needed. The precise benefits, rates and qualifying conditions are governed by the scheme's rules, so employees who need to claim should check the current terms.

How employers deposit and file

The employer runs the whole ESI mechanics. Each month it computes every covered employee's share and its own share, deducts the employee portion from salary, and deposits the combined amount with the scheme within the timeline the rules set. The employer also files the required returns and keeps records that reconcile wages to contributions. Missing the deposit deadline can attract interest or penalties, so employers treat the ESI payment as a fixed monthly task alongside PF and TDS. This is exactly the kind of repetitive, error-prone calculation that payroll software is built for, because it applies the correct rates to each person, handles the rounding, and produces the totals needed for the deposit.

Common mistakes to avoid

A few errors cause most ESI trouble:

Using a stale wage threshold: the coverage limit changes, so an outdated figure can wrongly include or exclude an employee. Confirm the current threshold.
Applying old rates: the contribution percentages are revised periodically. Compute with the rates in force, not the ones you used last year.
Flipping coverage mid-period: when someone crosses the threshold during a cycle, the continuity rule applies, so do not drop them abruptly.
Missing the deposit deadline: late deposits attract interest or penalties, so keep ESI on the same monthly schedule as your other statutory payments.

The bottom line

ESI is a percentage of an employee's wages, shared between a smaller employee contribution and a larger employer contribution, due each month for workers earning within the scheme's wage threshold. Work out both shares on the same wage figure, deposit the combined amount on time, and keep clean records. Because the rates and the threshold are set by the scheme and change from time to time, always confirm the current figures before you compute. If you run a business and want PF, ESI and salary handled together, IndiaCRM does payroll in a free app. See payroll features, try the EPF and ESI calculator, or get the mobile app and run your first payroll today.