ESI Contribution Rate 2026: Employee & Employer Rates
If you run payroll for an Indian company with 10 or more employees, ESI compliance is not optional. The ESI contribution rate is 4% of wages, split between the employer (3.25%) and the employee (0.75%). These rates have been in effect since July 2019.
But knowing the rates is only half the job. You also need to understand who qualifies, what counts as wages, when to deposit contributions, and what mistakes trip up even experienced payroll teams.
This article covers the current rates for 2026, two worked examples with the full math, and answers to the questions HR teams ask most.
What Is ESI (Employee State Insurance)?
The Employees’ State Insurance (ESI) scheme is a social security programme run by the Employees’ State Insurance Corporation (ESIC), under the ESI Act of 1948. It provides medical and cash benefits to employees earning below a certain threshold.
If your establishment is covered, you must register with ESIC, deduct the employee’s share from their salary every month, and deposit both contributions within the prescribed deadline.
ESI applies to factories, shops, hotels, restaurants, cinemas, road transport undertakings, and newspaper establishments. The scheme now covers all districts in India.
Current ESI Contribution Rates (2026)
The ESI contribution rates were last revised on 1 July 2019, when the total rate dropped from 6.5% to 4%. These rates remain unchanged in 2026.
| Contributor | Rate | Who Pays |
|---|---|---|
| Employer | 3.25% of wages | Company |
| Employee | 0.75% of wages | Deducted from salary |
| Total | 4% of wages | Combined deposit |
Employer Contribution: 3.25%
The employer pays 3.25% of each covered employee’s wages. This amount is not deducted from the employee’s salary. The employer bears this cost directly.
Employee Contribution: 0.75%
The employee’s share is 0.75% of wages, deducted at source each month. However, employees whose daily average wage is Rs. 176 or less are exempt from paying their share. The employer must still contribute the full 3.25% even for these employees.
Total Contribution: 4%
The employer collects and deposits the full 4% (both shares combined) to ESIC. This is done through the ESIC portal each month.
ESI Applicability: Who Needs to Register?
ESI registration is mandatory for:
- Factories employing 10 or more persons (using power) or 20 or more (not using power)
- Shops, hotels, restaurants, cinemas, road transport, and newspaper establishments with 10 or more employees in most states
Some states have set the threshold at 20 employees. Maharashtra, for instance, requires 20 or more employees for shops and commercial establishments. Check your state’s specific notification to confirm.
Once registered, an establishment stays covered even if employee count drops below the threshold later.
Which Employees Are Covered?
Any employee earning Rs. 21,000 per month or less in gross wages is covered. For persons with disabilities, the ceiling is Rs. 25,000 per month.
This includes temporary staff, contract workers, and probationers. Directors drawing a salary are also covered if their wages fall within the limit.
ESI Salary Limit and Wage Definition
The wage ceiling for ESI coverage is Rs. 21,000 per month in gross wages. This is not basic salary or CTC. It is the total gross wages paid to the employee.
What Counts as “Wages” Under ESI?
ESI wages include:
- Basic salary
- Dearness allowance (DA)
- House rent allowance (HRA)
- Overtime pay
- Attendance bonus or incentive
- Any other allowance paid regularly
What Is Excluded from ESI Wages?
The following are not counted as wages for ESI:
- Employer’s contribution to PF
- Gratuity
- Retrenchment compensation
- Statutory bonus
New Wage Definition Under the Code on Social Security, 2020
The four Labour Codes took effect on 21 November 2025 (Official Gazette notification). ESIC then issued implementing notifications on 10-11 December 2025, making December 2025 the first affected payroll cycle.
The Code on Social Security, 2020 introduced a uniform definition of “wages” that changes how ESI contributions are calculated. Under the new definition, if allowances (HRA, conveyance, etc.) exceed 50% of an employee’s total remuneration, the excess is added back to wages for ESI calculation purposes. This effectively means basic pay plus DA must be at least 50% of gross remuneration.
This changes things for companies that structured salaries with a low basic and high allowances to reduce ESI liability. More of the salary now counts as “wages” for ESI purposes, which can push previously exempt employees back into the ESI net.
If your payroll has not been updated to reflect the new wage definition, consult your compliance advisor or check the latest ESIC circular.
ESI Contribution Calculation with Worked Examples
The formula is straightforward:
- Employee deduction = Gross wages x 0.75%
- Employer contribution = Gross wages x 3.25%
- Total ESI deposit = Gross wages x 4%
Example 1: Employee Earning Rs. 18,000/month
Ravi works at a manufacturing unit in Pune. His monthly gross salary is Rs. 18,000.
| Component | Calculation | Amount |
|---|---|---|
| Employee’s share (0.75%) | 18,000 x 0.0075 | Rs. 135 |
| Employer’s share (3.25%) | 18,000 x 0.0325 | Rs. 585 |
| Total ESI contribution | 18,000 x 0.04 | Rs. 720 |
Ravi takes home Rs. 17,865 after ESI deduction (18,000 - 135). The employer deposits Rs. 720 to ESIC.
Example 2: Employee Earning Rs. 21,000/month (At the Threshold)
Priya works at an IT services company in Bangalore. Her monthly gross salary is Rs. 21,000, which is exactly the wage ceiling. She is covered because ESI applies to employees earning Rs. 21,000 or below.
| Component | Calculation | Amount |
|---|---|---|
| Employee’s share (0.75%) | 21,000 x 0.0075 | Rs. 157.50 |
| Employer’s share (3.25%) | 21,000 x 0.0325 | Rs. 682.50 |
| Total ESI contribution | 21,000 x 0.04 | Rs. 840 |
Priya takes home Rs. 20,842.50 after ESI deduction. The employer deposits Rs. 840 to ESIC.
What Happens If Salary Crosses Rs. 21,000 Mid-Cycle?
If an employee’s salary crosses Rs. 21,000 during a contribution period (April-September or October-March), they remain covered until the end of that period. You continue deducting ESI until the period ends, even if their salary exceeds the threshold.
ESI Payment Due Dates and Compliance Calendar
ESI contributions must be deposited by the 15th of the following month. For example, March contributions are due by 15 April.
ESI operates on a six-month contribution cycle linked to benefit periods:
| Contribution Period | Cash Benefit Period |
|---|---|
| April to September | January to June (following year) |
| October to March | July to December |
Compliance Checklist for Employers
- Register with ESIC within 15 days of becoming applicable
- File monthly contributions by the 15th of the next month
- File half-yearly return (Form 5) within 42 days of the contribution period end
- Maintain attendance and wage records
- Display ESIC registration certificate at the workplace
- Issue TIC (Temporary Identity Card) to new employees
Late payment attracts interest at 12% per annum and damages up to 25% of the arrears.
ESI Benefits for Employees
Covered employees and their families get more than medical coverage:
| Benefit | What It Covers |
|---|---|
| Medical benefit | Free treatment at ESIC hospitals and dispensaries for employee and family |
| Sickness benefit | 70% of wages for up to 91 days per year during certified illness |
| Maternity benefit | Full wages for 26 weeks (up to 2 children) |
| Disability benefit | 90% of wages for temporary disability; monthly pension for permanent disability |
| Dependents’ benefit | Monthly pension to dependents if the employee dies due to employment injury |
| Funeral expenses | Lump sum payment (currently Rs. 15,000) toward funeral costs |
These benefits apply from day one of employment. There is no waiting period for medical benefits. Cash benefits like sickness and maternity require a minimum contribution period.
Common Mistakes in ESI Calculation
These are the errors that show up most often during ESIC inspections and audits:
- Not deducting ESI on overtime. Overtime pay is part of wages under ESI. If you exclude it from your calculation, you are under-deducting.
- Excluding employees who cross the Rs. 21,000 threshold mid-period. They must remain on the ESI roll until the current contribution period ends.
- Using basic salary instead of gross wages. ESI is calculated on gross wages, not basic. This is a common error for teams used to PF calculations (which are on basic salary).
- Missing the payment deadline. Contributions are due by the 15th, not the end of the month. Late deposits attract penalty and interest.
- Not covering contract and temporary staff. If they work in your establishment and earn below the threshold, they are covered. The principal employer is liable for compliance.
- Ignoring the daily wage exemption. Employees earning Rs. 176/day or less do not pay their 0.75% share, but the employer must still deposit 3.25%.
How EasyHR Automates ESI Compliance
Managing ESI through spreadsheets is a recipe for missed deadlines and penalties. EasyHR handles ESI as part of its payroll engine. It detects which employees qualify based on their wage components and the Rs. 21,000 ceiling, calculates contributions at the correct rates on gross wages, and handles mid-cycle salary changes so deductions continue until the contribution period ends. The system also generates ESIC-compliant challans, tracks the 15th-of-month deadline, and produces half-yearly returns with pre-filled data.
Try EasyHR free to automate ESI, PF, and TDS compliance in one payroll run. No more spreadsheets, no more missed deadlines.
For a broader view of compliance requirements, check our statutory compliance guides.
Frequently Asked Questions
What is the current ESI contribution rate?
The current ESI contribution rate is 4% of wages. The employer pays 3.25% and the employee pays 0.75%. These rates have been effective since 1 July 2019.
What is the ESI salary limit?
The ESI wage ceiling is Rs. 21,000 per month in gross wages. For persons with disabilities, the limit is Rs. 25,000 per month.
Is ESI calculated on basic salary or gross salary?
ESI is calculated on gross wages, which includes basic salary, DA, HRA, overtime, and other regular allowances. It is not calculated only on basic salary.
When is the ESI payment due?
ESI contributions must be deposited by the 15th of the month following the wage month. For example, April contributions are due by 15 May.
What happens if an employee’s salary exceeds Rs. 21,000?
If the salary crosses Rs. 21,000 during an ongoing contribution period (April to September, or October to March), the employee remains covered until that period ends. ESI deductions continue until the period is over.
Do contract workers need ESI coverage?
Yes. Contract workers, temporary staff, and daily wage earners working in a covered establishment are eligible for ESI if their wages are Rs. 21,000 or below. The principal employer is responsible for ensuring compliance.
Can an employer recover the full ESI contribution from the employee?
No. The employer must bear their 3.25% share. Recovering the full 4% from the employee is illegal and attracts penalties.
If ESI compliance is eating up your payroll hours, book a free demo of EasyHR and see how ESI, PF, and TDS run on autopilot.
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