Employees’ State Insurance Act, 1948

July 7, 2025

Introduction

The Employees’ State Insurance Act, 1948 (ESI Act), is a landmark social security legislation enacted by the Parliament of India. It was the first major social security program launched in independent India, aiming to provide comprehensive socio-economic protection to workers and their dependents. The Act addresses various health-related eventualities that workers are commonly exposed to, such as sickness, maternity, temporary or permanent disablement, occupational diseases, or death due to employment injury, which can result in loss of wages or earning capacity.

The primary objective of the ESI Act is to uphold human dignity during times of crisis by protecting individuals from deprivation, destitution, and social degradation. It also aims to enable society to retain and ensure the continuity of a socially useful and productive workforce. The scheme is administered by a statutory corporate body known as the Employees’ State Insurance Corporation (ESIC), which operates under the Ministry of Labour and Employment, Government of India.

Applicability of the ESI Act

The ESI Act extends to the whole of India. Its provisions are applicable to:

Factories: Any premises, including the precincts thereof, whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on.
Non-power using factories: Whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on.
Other Establishments: The “appropriate Government” (Central or State) is empowered to extend the provisions of the ESI Act to various classes of establishments, industrial, commercial, agricultural, or otherwise. This includes:
- Shops
- Hotels or restaurants (not having any manufacturing activity, but only engaged in ‘sales’)
- Cinemas, including preview theatres
- Road Motor Transport Establishments
- Newspaper establishments (not covered as factories)
- Private Educational Institutions (those run by individuals, trustees, societies, or other organizations)
- Medical Institutions (including Corporate, Joint Sector, trust, charitable, and private ownership hospitals, nursing homes, diagnostic centers, pathological labs)

Important Note on Coverage: Once a factory or establishment is covered under the ESI Act, it continues to be covered even if the number of employees at any later stage falls short of the stipulated number (10/20 employees) or the manufacturing process ceases to be carried on with the aid of power. The Act, however, generally does not apply to workers engaged in mining operations, railway running sheds, and seasonal factories as defined under the Act.

Wage Limit for Coverage: Employees drawing wages up to ₹21,000 per month are currently covered under the ESI scheme. For persons with disabilities, this wage limit is extended to ₹25,000 per month. If an employee’s wages exceed this limit after the beginning of a contribution period, they continue to be covered until the end of that period.

Definitions of Key Terms

To understand the ESI Act fully, it’s essential to grasp some key definitions:

Employee: Any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies, whether directly employed by the principal employer or through an immediate employer. This includes casual, temporary, contractual, and regular employees.
Wages: All remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled. This includes dearness allowance, house rent allowance, city compensatory allowance, and other similar allowances. However, it generally excludes overtime payments.
Insured Person: A person who is or was an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to the benefits provided by the Act.
Family: Includes a spouse, minor legitimate or adopted children dependent upon the insured person, children receiving education up to 21 years of age, unmarried daughters, infirm children wholly dependent on the insured person, and dependent parents.
Employment Injury: A personal injury to an employee caused by accident or an occupational disease arising out of and in the course of his employment in a factory or establishment to which this Act applies.

Contributions to the ESI Scheme

The ESI Scheme is primarily self-financed through contributions from both employees and employers, calculated as a fixed percentage of wages. These contributions are deposited into the Employees’ State Insurance Fund, which is administered by the ESIC.

Current Contribution Rates (subject to change by government notification):

Employee’s Contribution: 0.75% of the wages.
Employer’s Contribution: 3.25% of the wages.

Exemptions: Employees earning up to ₹176 per day as average daily wages are exempted from paying their share of the contribution. However, the employer is still required to pay their own share in respect of these exempted employees.

Responsibility of Employer: The principal employer is responsible for paying both the employer’s and employee’s contributions for every eligible employee, regardless of whether they are directly employed or through an immediate employer. The employer must deduct the employee’s contribution from their wages and deposit the total contribution (employer’s + employee’s share) with the ESIC within 15 days of the last day of the calendar month in which the contributions fall due.

Contribution Periods and Benefit Periods: The ESI scheme divides the calendar year into two contribution periods of six months each, with corresponding benefit periods in the following year. For example, contributions made during April to September lead to benefits during January to June of the next year, and contributions from October to March lead to benefits from July to December of the next year.

Benefits under the ESI Act

The ESI Act provides a comprehensive range of social security benefits to insured persons and their dependents. These benefits are categorized into cash benefits and non-cash benefits (medical care).

A. Medical Benefit

Comprehensive Medical Care: Full medical care, including primary, secondary, and tertiary medical services, is provided to an insured person and their family members from the day they enter insurable employment. There is generally no ceiling on expenditure for the treatment.
Facilities: Medical care is provided through ESI dispensaries, hospitals, and empanelled private hospitals.
Retired Insured Persons: Retired insured persons and their spouses can also avail medical benefit by paying a nominal annual contribution.

B. Sickness Benefit (Cash Benefit)

Eligibility: Payable to an insured person during periods of certified sickness, provided they meet the minimum contribution conditions.
Rate: Generally, 70% of the average daily wages, payable for a maximum of 91 days in two consecutive benefit periods.
Extended Sickness Benefit (ESB): For certain long-term diseases (e.g., tuberculosis, leprosy, malignant diseases), the benefit is extended up to two years at an enhanced rate of 80% of wages.
Enhanced Sickness Benefit: Full wage (100% of average daily wages) is payable for 7 days (for males) or 14 days (for females) for insured persons undergoing sterilization operations.

C. Maternity Benefit (Cash Benefit)

Eligibility: Payable to an insured woman during confinement, miscarriage, medical termination of pregnancy, or sickness arising out of pregnancy, provided she meets the contribution conditions.
Rate: Full average daily wages (100%).
Duration: Up to 26 weeks for confinement, extendable by one month on medical advice. For miscarriage, 6 weeks.

D. Disablement Benefit (Cash Benefit)

This benefit is payable to an insured person suffering from physical disablement due to an employment injury or occupational disease.

Temporary Disablement Benefit (TDB): Payable from day one of entering insurable employment, irrespective of contributions, in case of employment injury. The rate is 90% of the average daily wages, payable as long as the disability continues.
Permanent Disablement Benefit (PDB): Payable in the form of monthly payments at the rate of 90% of wages, depending on the extent of loss of earning capacity as certified by a Medical Board. This benefit is lifelong.

E. Dependants’ Benefit (Cash Benefit)

Eligibility: Payable to the dependents of an insured person who dies as a result of an employment injury or occupational disease.
Rate and Distribution: The benefit is paid monthly at the rate of 90% of the average daily wages of the deceased insured person. It is distributed among the dependents as follows:
- Widow: Half of the total benefit, payable for life or until remarriage.
- Widowed Mother: Two-fifths of the total benefit, payable for life.
- Each legitimate or adopted son: One-fifth of the total benefit until the age of 25 years.
- Each legitimate or adopted unmarried daughter: One-fifth of the total benefit until marriage.
- Dependent infirm children and other specified dependents may also receive benefits under certain conditions.

F. Other Benefits

Funeral Expenses: An amount of ₹15,000 (subject to revision) is payable to the dependents or the person who performs the last rites of the deceased insured person, admissible from day one of insurable employment.
Confinement Expenses: Payable to an insured woman or an insured person in respect of his wife if confinement occurs at a place where necessary medical facilities under the ESI Scheme are not available.
Physical Aids and Appliances: Free supply of physical aids and appliances like crutches, wheelchairs, dentures, spectacles, etc., for insured persons and their dependents.
Unemployment Allowance (Rajiv Gandhi Shramik Kalyan Yojana): Payable to workers facing involuntary unemployment due to factory/establishment closure, retrenchment, or permanent invalidity arising out of non-employment injury. The allowance is 50% of the average daily wages for a maximum period of up to two years, along with medical care for self and family during this period. Vocational training is also provided.
Rehabilitation Allowance: Payable to an insured person for the period he is undergoing physical rehabilitation at an ESIC hospital or institution after suffering an employment injury.

Administration of the ESI Scheme

The ESI Scheme is administered by the Employees’ State Insurance Corporation (ESIC), a statutory body established under Section 3 of the ESI Act, 1948.

Structure of ESIC:

Composition: The ESIC comprises members representing the Central Government, State Governments, employers, employees, medical professionals, and Members of Parliament.
Apex Body: The Corporation is the apex body responsible for the overall administration, management, and supervision of the scheme.
Standing Committee: A Standing Committee, constituted by the Corporation, acts as the executive body for the administration of the scheme.
Medical Benefit Council: This council advises the Corporation on matters related to medical care and treatment.
Director-General: The chief executive officer of the ESIC, responsible for the day-to-day administration.

Funding: The ESI Fund is the primary monetary source for the ESIC. All contributions paid under the Act, grants, donations, and gifts from governments, local bodies, individuals, or corporate bodies are paid into this fund.

Powers and Functions: The ESIC is empowered to acquire, hold, sell, or transfer property, promote measures for the health and welfare of insured persons, and facilitate their rehabilitation and re-employment. It also has the power to recover contributions and other dues.

Compliance and Responsibilities

Both employers and employees have specific responsibilities under the ESI Act:

Employer’s Responsibilities:

Registration: Mandatory for employers to register their factory/establishment under the ESI Scheme within 15 days from the date of its applicability. This is done online through the ESIC portal.
Contribution Payment: Timely payment of both employer’s and employee’s contributions. Any delay or non-payment of the employee’s contribution deducted from wages is considered a “breach of trust” and is punishable.
Record Keeping: Maintain proper registers and records pertaining to employees, wages, attendance, and contributions.
Furnishing Returns: Submit required information and returns to the Corporation.
Non-reduction of Wages: Employers cannot reduce the wages or overall benefits of employees due to their liability for contributions or expenses under this Act.
Protection against Dismissal: An employer cannot dismiss, discharge, or punish an employee during the period the employee is receiving sickness, maternity, or disablement benefits, or during periods of certified illness or pregnancy-related absence.
Accident Reporting: Report accidents to the relevant branch office using Form-12.

Employee’s Responsibilities:

Information Provision: Provide personal and family information to the employer for online registration.
Identity Card: Obtain and use the ESI identity card (Pehchan Card) for availing benefits. The insurance number generated during initial registration is lifelong.
Aadhaar Seeding: Seed Aadhaar card details for self and family members for easy access to medical benefits across the country.

Penalties under the ESI Act

The ESI Act prescribes various penalties for non-compliance with its provisions and regulations. These penalties are designed to ensure adherence to the social security scheme.

Failure to Pay Contributions:
- If an employer fails to pay the employee’s contribution that has been deducted from wages, they can face imprisonment for a term of not less than one year, which may extend to three years, along with a fine of ₹10,000.
- For failure to pay the employer’s contribution, the imprisonment term shall not be less than six months and may extend to three years, with a fine of ₹5,000.
False Statements/Returns: Providing false information or making false returns can lead to imprisonment for up to six months or a fine of up to ₹2,000, or both.
Obstruction of Officers: Obstructing any officer of the Corporation in the discharge of their duties can result in imprisonment for up to one year or a fine of up to ₹4,000, or both.
Reduction of Wages/Benefits or Dismissal: Reducing wages, privileges, or benefits of an employee, or dismissing/punishing an employee during benefit periods, can lead to imprisonment for up to one year or a fine of up to ₹4,000, or both.
Subsequent Offences: For every subsequent offence of the same nature after a previous conviction, enhanced penalties apply, including longer imprisonment terms and higher fines. For instance, repeated failure to pay contributions can lead to imprisonment for up to five years (not less than two years) and a fine of ₹25,000.
Bounced Cheques: If a cheque issued for payment of contribution, interest, or damages bounces due to insufficient funds, it constitutes an offence punishable under the Act.
Damages: In addition to penalties, damages may be levied for delayed or non-payment of contributions, which can be recovered as arrears of land revenue. These damages can be waived partially or wholly in exceptionally hard cases.

Conclusion

The Employees’ State Insurance Act, 1948, stands as a cornerstone of social security in India. It provides a robust framework for safeguarding the health and economic well-being of industrial and other organized sector workers and their families. By offering a range of medical, cash, and other benefits, the Act aims to mitigate the financial distress caused by sickness, maternity, and employment injuries, thereby contributing to a more secure and productive workforce. Its effective implementation and compliance are crucial for realizing the vision of socio-economic justice for the working class.

Frequently Asked Questions (FAQs) about the Employees’ State Insurance Act, 1948

What is the main objective of the ESI Act, 1948? The main objective is to provide certain benefits to employees in case of sickness, maternity, and employment injury, and to make provisions for related matters.
Which establishments are covered under the ESI Act? The Act primarily covers factories employing 10 or more persons (with power) or 20 or more persons (without power). It also extends to shops, hotels, restaurants, cinemas, road transport establishments, newspaper establishments, and private medical and educational institutions employing 20 or more persons.
Is it mandatory for an employer to register under the ESI Scheme? Yes, it is a statutory responsibility for employers to register their factory/establishment under the ESI Scheme within 15 days of its applicability.
What is the current wage limit for an employee to be covered under ESI? Currently, employees earning up to ₹21,000 per month are covered. For persons with disabilities, the limit is ₹25,000 per month.
What are the current ESI contribution rates for employers and employees? The employer contributes 3.25% of wages, and the employee contributes 0.75% of wages.
Are all employees required to pay ESI contributions? No, employees earning up to ₹176 per day as average daily wages are exempted from paying their share of the contribution, though the employer still pays their share.
Who is responsible for paying ESI contributions to the ESIC? The principal employer is responsible for deducting the employee’s share and paying both the employer’s and employee’s contributions to the ESIC.
What is the deadline for depositing ESI contributions? Contributions must be deposited within 15 days of the last day of the calendar month in which the contributions fall due.
What are the main types of benefits provided under the ESI Act? The main benefits include Medical Benefit, Sickness Benefit, Maternity Benefit, Disablement Benefit (Temporary and Permanent), and Dependants’ Benefit. Other benefits like Funeral Expenses and Unemployment Allowance are also provided.
Is medical care provided to family members of the insured person? Yes, full medical care is provided to the insured person and their family members from day one of insurable employment.
How long can an insured person receive Sickness Benefit? Generally, for a maximum of 91 days in two consecutive benefit periods. For certain long-term diseases, it can be extended up to two years (Extended Sickness Benefit).
What is “Employment Injury”? It refers to a personal injury to an employee caused by an accident or an occupational disease arising out of and in the course of their employment.
What is the difference between Temporary and Permanent Disablement Benefit? Temporary Disablement Benefit (TDB) is paid while the disability continues, typically at 90% of wages. Permanent Disablement Benefit (PDB) is a lifelong monthly payment, also at 90% of wages, based on the certified loss of earning capacity.
Who is eligible for Dependants’ Benefit? Dependants’ Benefit is paid to the dependents (widow, widowed mother, children, etc.) of an insured person who dies due to an employment injury or occupational disease.
What is the amount payable for Funeral Expenses? An amount of ₹15,000 (subject to revision) is payable to the dependents or the person performing the last rites.
Can an employer dismiss an employee who is receiving ESI benefits? No, an employer cannot dismiss, discharge, or punish an employee during the period they are receiving sickness, maternity, or disablement benefits, or during periods of certified illness or pregnancy-related absence.
What happens if an employer delays or fails to pay ESI contributions? Employers can face penalties including imprisonment and fines. Delayed payment also attracts interest and damages. Non-payment of employee’s deducted contribution is considered a “breach of trust.”
What records must an employer maintain for ESI compliance? Employers must maintain registers of employees, wage records, attendance records, and other relevant books of accounts.
Can a factory/establishment go out of ESI coverage if the number of employees falls below the minimum limit? No, once a factory or establishment is covered under the Act, it continues to be covered even if the number of employees falls below the minimum limit.
Is there any unemployment allowance under the ESI scheme? Yes, under the Rajiv Gandhi Shramik Kalyan Yojana, an unemployment allowance (50% of average daily wages) is paid for up to two years to workers facing involuntary unemployment due to factory closure, retrenchment, or permanent invalidity. Medical care and vocational training are also provided during this period.

Disclaimer

This document provides general information about the Employees’ State Insurance Act, 1948. While efforts have been made to ensure accuracy, the information presented here is for educational and informational purposes only and should not be considered as legal advice. The provisions of the Act, rules, and regulations are subject to amendments and interpretations by courts and authorities. For specific legal advice or detailed understanding, it is recommended to consult with a qualified legal professional or refer to the official gazette notifications and amendments issued by the Government of India and the Employees’ State Insurance Corporation (ESIC). The author and publisher do not assume any responsibility for any errors or omissions, or for the results obtained from the use of this information.