Why the ESI Act of 1948 is one of the most popular social security schemes in India?

ESI enrolment has been made mandatory by the government, and it includes those in the unorganised sector as well.

One of the biggest takeaways to have emerged from the COVID-19 crisis is the need for employers to provide adequate health insurance cover to their employees. As businesses reopen, the central government announced that it is mandatory for all employees to be given health insurance. Earlier, those in the unorganised sector did not have access to Employee State Insurance (ESI) benefits. 

Incidentally, it’s the unorganised sector that was among the worst hit during the pandemic. So, this step is expected to directly benefit more than 40 crore workers, as per a report in the Economic Times. It Is worth noting that several social security and labour welfare laws have been enacted in India since independence. One of these is the Employee State Insurance Act of 1948.

Related: Can you get your job insured? Here’s everything you need to know

What is the ESI Act of 1948?

The Employee State Insurance (ESI) Act of 1948 is a landmark legislation aimed at protecting workers from the financial consequences of temporary or permanent disablement, loss of income due to on-job injury, maternity, or illness, through self-funded health insurance. It also covers the needs of their immediate dependents. 

The ESI scheme, formally launched in 1952, is currently one of the largest social security schemes anywhere in the world. It is primarily aimed at providing a social security net to blue-collar workers and their dependents in the event of a health emergency that affects their ability to earn an income. In addition to medical benefits, ESI also provides coverage for funeral expenses, vocational rehabilitation in case permanent disability, as well as prosthetic devices.

The Employee State Insurance Corporation (ESIC) was established under the provisions of the Act to implement the ESI scheme throughout the country. It has a vast network of offices across all Indian states and Union Territories and served more than 13.32 crore beneficiaries as of 31^st March 2019. With around 7 lakh new enrolments per month on average, its subscriber base is growing rapidly every year.

How does it work?

Under the scheme, businesses employing more than 10 workers are required to register themselves with ESIC and make contributions on behalf of their employees, subject to the following conditions:

• Wage limit: The scheme is applicable to all employees earning up to Rs 21,000 per month. This wage limit has been revised twice so far – from Rs 10,000 to Rs 15,000 in May 2010 and again to Rs 21,000 in December 2016. An exception has been made for disabled employees, whose minimum limit to qualify for this scheme is Rs 25,000 per month.
• Share of contribution: The share of the employee’s contribution is subject to change from time to time. Currently, employers are required to contribute a total of 4% of the monthly wages of their workers to the ESI fund. Of this, the employer’s share is 3.25% and that of the employees is 0.75%. Prior to 1 July 2019, the employer was required to contribute a total of 5% as ESI contribution. Of this, 4% was deemed to be the employer’s share, while the remaining 1% was the employee’s contribution. Daily wage employees who earn up to Rs 137 per day do not have to contribute to ESI themselves; however, their employers need to pay the full share.

Related: Minimise your tax outgoings by structuring your salary intelligently

Who does the ESI Act benefit?

The ESI Act was initially meant only for industrial workers. However, over the years, it has been extended to employees working in agricultural and commercial units, restaurants and hotels, movie halls, logistics and transportation companies, media organisations, airports, seaports, warehouses, and educational and medical institutions. Non-seasonal factory workers have also been brought within its limits.

In some states, there are minor differences regarding eligibility. For example, a minimum of 20 employees is required for ESI coverage in Maharashtra.

What are the rights of employees under the Act?

The ESI Act provides the following features to employees enrolled in the programme:

• Payment for any benefit under the Act are not transferable from person to person
• Employees on maternity leave or those injured at work cannot be terminated by their employers during the ESI claim period.
• Employers are restrained from arbitrarily cutting the wages of their employees to pay their share of the ESI contribution.
• Employees can report their employers to the ESIC authorities if they are denied coverage despite meeting the eligibility criteria.
• If they are not satisfied with the decision of the ESI Medical Board, employees filing a claim can appeal to an ESI Court that has been set up specifically to resolve such disputes.
• Under the provisions of the ESI Act, cash benefits accruing to an employee cannot be confiscated or sold by any court of law.

What are the responsibilities of employers?

• Employers need to apply for ESI membership within 15 days of meeting the eligibility criteria and submit a declaration form with all the coverable employees.
• The contribution (the share of employees and employers) is to be deposited within 21 days of the succeeding calendar month.
• They are required to maintain up-to-date records of their employees’ ESI details and submit the same for inspection whenever required.
• Any change in the operations of the business – such as registered address, type of business activity, or ownership – needs to be updated with the ESIC immediately.
• When taking over a new factory/establishment, the employer must ascertain any liability towards ESI dues.

Related: Amended ESIC rules regarding employee contribution and maternity benefit

It’s important to understand the features and benefits of the ESI scheme so that you are able to maximise your savings from it.