ESI Scheme: What is ESI Scheme? | Benefits | Applicability of Scheme

ESI Scheme: For a country to grow and develop, there should be sustainable and balanced growth of agricultural and industrial sectors. Thus, industrial sector play a major role in improving the wealth of a country. In order that industries focus on their core areas, i.e., optimum utilisation of the available resources and improving the productivity of the factors of production, without worrying about protecting the workforce from the physical and financial distress arising out of sickness, maternity, employment injury, etc, the ESI Scheme was devised.

The employers play a major role in the functioning of the Scheme, through registration of it’s employees, remittance of contribution and through compliance with the provisions of the Act. This guide is meant to be a reference booklet for the covered and coverable employers, whose role is pivotal for the success of the Scheme.

What is ESI Scheme ?

The ESI Scheme is a comprehensive social security scheme devised to protect the employees covered under the Scheme against financial distress arising out of events of sickness, maternity, disablement / death due to employment injuries and to provide medical care to the employees and their families. The Scheme is based on the principle of ‘pooling of risks and resources’, wherein that section of the population which is exposed to risks of the same nature, come together to mitigate the physical and financial distress arising out of such risks.

To whom is the Scheme applicable to ?

The Scheme is applicable to only those areas where the Scheme is extended / made applicable by the State Government by notification. The Scheme applies to all factories, shops and establishments located in the implemented areas, where ten or more persons are employed. Thus, the Scheme is applicable to all factories, shops, hotels, restaurants, cinema theatres, offices, medical institutions, educational institutions, etc. subject that:

  • i. The employer is located in an area to which the Scheme is extended to by the State Government, and
  • ii. Ten or more persons are employed

The Scheme is NOT applicable to :

  • i. Seasonal factories exclusively engaged in one or more of the following manufacturing processes, viz., cotton ginning, cotton or jute pressing, decortication of ground-nuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes
  • ii. Mines, subject to the operation of the Mines Act.

Which of the employees are eligible to avail benefits under the Scheme ?

All employees of a covered unit, whose monthly remuneration (excluding overtime) does not exceed Rs.21,000/- per month (wef. 01.01.2017), are eligible to avail benefits under the Scheme.

Who is responsible for the administration of the Scheme ?

The Scheme is administered by the Employees State Insurance Corporation, set up under the ESI Act, 1948. The Corporation (similar to Board of Governors) the comprises of representatives of the employers, employees, the Central Government, State Governments, eminent medical professionals and that of the Parliament. Besides the Corporation, there is a Medical Benefit Council which advises the Corporation on matters related to the extension of medical care to the beneficiaries of the Scheme.

The Director-General is the Chief Executive of the Corporation is the ex-officio member of the Corporation. At the state level, Regional boards have been constituted and at the grass-root level, Local Committees have been constituted for the smooth functioning of the Scheme. The Regional Boards and Local Committees comprise of representatives of employers and employees of the respective jurisdiction, so as to cater to the local and varied needs of the employers / employees.

The Corporation has its headquarters at New Delhi, besides regional offices / sub regional offices in the states and over 800 local offices throughout the country. While the administration of the Scheme, including coverage, collection of contribution, disbursement of cash benefits, etc. are under the Corporation, the extension of medical care is administered by the respective State Governments on a cost sharing basis.

How is the Scheme financed ?

The Scheme is funded by the contributions raised from the employees and employers of the covered employers. The rates of contribution, as a percentage of wages paid / payable to the employees, are as under:

Employees’ contribution 1.75% of the Wages
Employers’ contribution 4.75% of the wages.

Thus, in respect of each of the employee, 6.50% of the wages (including overtime allowance) is to be paid as contribution to Scheme. The Scheme does not receive any budgetary support from the Government. The State governments, as per the provisions of the Act, contribute 12.5% of expenditure on medical care on ESI beneficiaries in their respective States within the per capita ceiling.

However, vide notification dated 06.10.2016, Rule 51 of ESI (Central) Rules, 1950 has been amended by inserting Rule 51B, whereby the rate of employees’ contribution has been reduced to 1% and the employer’s contribution has been reduced to 3% of the wages in the first time implemented areas after 06.10.2016 for a period of two years .

What benefits do the employers avail under the Scheme ?

The various benefits that the employers reap out of the Scheme are:

i. No expenditure to be incurred towards administration of medical care to the employees / their dependants.

ii. No requirement for medical insurance policy as all medical facilities, including Super specialty treatment is extended to the beneficiaries, without any ceiling on expenses.

iii. Employers are exempted from the provisions of / liabilities under:

  1. Maternity Benefit Act
  2. Employees’ Compensation Act

What are the benefits that the employees get out of this Scheme ?

The benefits available under the Scheme to the employees can be categorised under two broad heads, viz., cash benefits and non-cash benefit, viz., medical care.

Cash Benefits:

i. Sickness benefit – for employees during the period of sickness

ii. Maternity benefit – for employees during the period of confinement

iii. Disablement benefit:

  • Temporary disablement benefit: for employees arising out of employment injury
  • Permanent disablement benefit: for employees arising out of employment injury

iv. Dependants’ benefit – for dependants of employees; in case of death of employee due to employment injury

v. Other benefits:

  1. Funeral Expenses – to a person who performs the last rites of the deceased employee
  2. Rehabilitation allowance – for employee who is disabled due to employment injury
  3. Vocational rehabilitation – for employee who is disabled due to employment injury
  4. Medical Bonus – for insured woman / wife of employee during confinement

Medical Care: Employees and their dependants are administered medical care, through ESI dispensaries, hospitals, etc.; in case the requisite facilities are not available in the ESI hospitals, the employees are referred to premier private / government hospitals for medical treatment on ‘cashless’ basis. The employees / dependants of the employees are also entitled for super specialty treatment, without any ceiling on the cost of medical treatment.

Old age medical care: For retired employee and spouse on payment of Rs.120 per year; the beneficiaries are entitled to all medical facilities available in ESI hospitals (not eligible for referral to & treatment at tie-up hospitals)

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