The Employee State Insurance Scheme (ESI) contribution rate in 2026 is 4% of an employee’s gross wages, shared between the employer and the employee as per the Employees’ State Insurance Act, 1948. This includes an employer contribution of 3.25% and an employee contribution of 0.75%, unchanged since the July 2019 revision.
These ESI rates apply to eligible employees within prescribed wage limits and form a mandatory part of payroll compliance for covered establishments, making accurate calculation and timely payment essential.
What is the ESI scheme and who governs it?
The Employees’ State Insurance scheme is a self-financing social security programme established under the ESI Act, 1948. It provides medical, sickness, maternity, disability and dependent benefits to workers in the organised sector and their families.
Administered by the Employees’ State Insurance Corporation (ESIC) under the Ministry of Labour and Employment, the scheme was operationalised in 1952, initially covering factory workers. Today it extends to 713 districts across the country.
Who is covered under the ESI scheme?
The ESI scheme generally applies to factories and notified establishments employing 10 or more persons, including shops, hotels, restaurants, cinemas, road transport establishments, newspapers, private educational institutions and medical institutions, subject to state-specific notifications under the ESI Act.
Employees drawing monthly wages up to ₹21,000 are mandatorily covered. For employees with disabilities, the ESI wage limit is higher at ₹25,000 per month.
Who is exempt from ESI deduction?
Employees in receipt of a daily average wage up to ₹176 are exempted from payment of their own contribution. Employers, however, must still contribute their share in respect of these employees.
What happens when an employee’s salary crosses ₹21,000?
If an employee’s salary crosses ₹21,000 during a contribution period, April to September or October to March, they remain covered until the end of that period. ESI deductions continue until the period ends, even if the salary exceeds the threshold mid-period.
What are the current ESI contribution rates in 2026
As of 2026, the Employee State Insurance (ESI) contribution rate is fixed at 4% of an employee’s gross wages. This ESI percentage is shared between the employer and employee as follows:
|
Contributor |
ESI rate |
|
Employee |
0.75% of gross wages |
|
Employer |
3.25% of gross wages |
|
Total |
4% |
Effective 1 July 2019, the Government of India reduced the total ESI contribution rate from 6.5% to 4%. The employer’s share was reduced from 4.75% to 3.25%, and the employee’s share from 1.75% to 0.75%, benefiting millions of employees and employers across India.
These rates remain unchanged in 2026.
When must ESI contributions be deposited?
Employers must deposit ESI contributions monthly through the ESIC portal by the 15th of the following month.
ESI follows two six-month contribution cycles, each linked to a corresponding cash benefit period:
|
Contribution Period |
Cash Benefit Period |
|
1st April – 30th September |
1st January (following year) – 30th June |
|
1st October – 31st March |
1st July – 31st December |
What are the benefits available under the ESI scheme
The Employee State Insurance (ESI) scheme provides six core social security benefits to insured employees:
- Medical Benefit: Comprehensive medical care, including treatment, specialist consultations and hospitalisation for insured persons and their families, available from day one of employment.
- Sickness Benefit: Cash compensation at 70% of wages for up to 91 days in a year. This can be extended for up to 2 years at 80% in cases of long-term diseases (as per the notified list).
- Maternity Benefit: Full wages for 26 weeks, provided the employee has contributed for at least 70 days in the two preceding contribution periods.
- Disablement Benefit: 90% of wages as monthly payments, based on the extent of loss of earning capacity certified by a Medical Board.
- Dependants’ Benefit: 90% of wages paid monthly to dependants in case of death due to employment injury.
- Other Benefits: Includes funeral expenses of ₹15,000 available from day one, along with unemployment allowance at 50% of wages for up to two years under specified conditions.
How to calculate ESI contribution
ESI is calculated on an employee’s gross wages. To understand this, consider an employee earning ₹18,000 per month:
- Employee contribution: ₹18,000 × 0.75% = ₹135
- Employer contribution: ₹18,000 × 3.25% = ₹585
- Total ESI contribution: ₹135 + ₹585 = ₹720
This means ₹135 is deducted from the employee’s salary, while the employer contributes ₹585 separately. Together, the total monthly ESI deposit to the ESIC system is ₹720.
Conclusion
The ESI contribution rate may be fixed at 4%, but accurate calculation, correct eligibility assessment and timely deposit are what ensure true compliance. Even small errors in applying the deduction rate or missing statutory deadlines can lead to penalties and unnecessary payroll complications.
ESI compliance is not just about calculation, but about consistency and control in payroll processes. Businesses that build reliable systems early are better equipped to avoid errors and stay audit-ready.
Using a solution like TallyPrime helps automate ESI calculations, track employee contributions and streamline filings with greater accuracy. This reduces manual effort and ensures smoother, error-free compliance.
