How ESI Contribution Is Calculated

What is included in ESI wages

• Basic wages, dearness allowance, house rent allowance, city compensatory allowance
• Overtime (counted for contribution, but not for deciding coverage)
• Incentives and allowances paid at intervals not exceeding two months
• Payment for leave and holidays

• Excluded: annual bonus, gratuity, retrenchment compensation, employer contributions to PF and ESI, and reimbursement of actual expenses.

Calculation steps

1. 1Compute gross ESI wages for the month for each covered employee.
2. 2Apply 0.75% for the employee share and 3.25% for the employer share.
3. 3Round each amount to the next higher rupee.
4. 4Total across employees and generate the monthly challan.
5. 5Continue contribution to the end of the contribution period for anyone who crossed the wage limit mid-period.

Frequently asked questions

Is overtime included in ESI?

Overtime is included when calculating contribution, but it is not counted when deciding whether an employee is within the wage limit for coverage.

What if wages cross ₹21,000 in the middle of a contribution period?

Contribution continues on the full wages until the end of that contribution period; coverage stops from the next period.

Sources & references

• ESIC — Employees' State Insurance Corporation