ESIC Contribution Rate 2026 — Rates and Calculation
ESIC contribution rate 2026: employer 3.25% + employee 0.75% = 4% of gross wages, for employees earning up to ₹21,000 a month (₹25,000 for persons with disability). Example: on ₹18,000 wages, the employer pays ₹585 and the employee ₹135.
Rates at a glance
| Contributor | Rate | Basis | Frequency |
|---|---|---|---|
| Employee | 0.75% of wages | Wages as defined under the ESI Act | Monthly |
| Employer | 3.25% of wages | Wages as defined under the ESI Act | Monthly |
| Total | 4.00% of wages | — | Monthly |
Employees drawing average daily wages up to the notified low-wage threshold are exempt from the employee share; the employer share is still payable.
Wage limit and contribution periods
The wage limit for coverage is ₹21,000 per month (₹25,000 for employees with disability). ESI works on two fixed contribution periods — April to September and October to March. If an employee crosses the wage limit mid-period, contribution continues until the end of that period.
Which wage components count for ESI?
Section 2(22) of the ESI Act defines wages by the nature of a payment, not simply its payroll label. Start with cash remuneration payable under the employment contract and review each allowance before applying the contribution rates.
| Payment | Treatment for contribution |
|---|---|
| Basic pay, DA, HRA and other contractual cash allowances | Generally included as remuneration under the employment contract. |
| Pay for authorised leave, lay-off, lock-out or a legal strike | Included under the statutory wage definition. |
| Additional remuneration paid at intervals not exceeding two months | Included; assess the terms and frequency of incentives or other payments. |
| Overtime allowance | Included for contribution, but excluded when testing the coverage wage ceiling. |
| Employer pension/provident fund or ESI contributions | Excluded. |
| Travelling allowance or value of a travelling concession | Excluded. |
| Payments to meet special expenses arising from the employment | Excluded where they meet the statutory expense exclusion. |
| Gratuity payable on discharge | Excluded. |
Do not treat the ₹21,000 eligibility limit as a contribution cap. For a covered employee, contribution is payable on actual ESI wages, including overtime; coverage can continue to the end of a contribution period after a wage increase.
Worked example
| Monthly wages | Employee 0.75% | Employer 3.25% | Total |
|---|---|---|---|
| ₹15,000 | ₹113 | ₹488 | ₹601 |
| ₹21,000 | ₹158 | ₹683 | ₹841 |
How to calculate the monthly ESI contribution
Apply 0.75% to the employee's ESI wages for the employee share and 3.25% to the same wage base for the employer share. Add both amounts to find the total monthly contribution. The employer deducts the employee share from wages and deposits both shares with ESIC.
- Employee contribution = ESI wages × 0.75%
- Employer contribution = ESI wages × 3.25%
- Total contribution = ESI wages × 4%
Use the statutory definition of ESI wages rather than basic salary alone. Verify the wage components and current ESIC notifications before payroll processing or filing.
Employer responsibilities before paying the challan
- Under section 40, the principal employer pays both shares in the first instance, including for covered employees engaged through an immediate employer or contractor.
- Recover only the employee share from the wages for the relevant contribution period. The employer share must not be deducted from the employee's wages.
- Reconcile employee insurance numbers, attendance, ESI wage components, new joiners and exits against the monthly contribution details.
- Check the low-wage employee-share exemption and mid-period wage increases rather than automatically stopping contributions when wages exceed the eligibility limit.
- Deposit the monthly contribution by the 15th of the following month and retain the paid challan, contribution details and supporting payroll records.
- Reconcile contractor employee records and payment evidence; collecting a contractor challan does not by itself remove the principal employer's statutory responsibility.
Frequently asked questions
- What is the current ESI contribution rate?
- 0.75% of wages from the employee and 3.25% from the employer, totalling 4%.
- What is the ESI wage limit?
- ₹21,000 per month for most employees, and ₹25,000 for employees with disability.
- Is ESI calculated on basic salary or gross wages?
- ESI is calculated on wages as defined under the ESI Act, not on basic salary alone. The applicable wage components should be checked before calculating the contribution.
- Is overtime included in ESI contribution?
- Yes. Overtime allowance is included for contribution, but excluded when checking whether wages exceed the eligibility ceiling.
- Can an employer deduct both ESI shares from salary?
- No. Only the employee share may be recovered from wages for the relevant contribution period. The employer must bear the employer share and deposit both shares.
- What happens if wages cross the ESI limit during a contribution period?
- If wages cross the applicable limit after a contribution period begins, contributions generally continue until that contribution period ends.
Sources & references
Last Updated: 2026-10-08
Information is based on applicable laws, rules, notifications and government sources and should be verified for the latest amendments.
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