Employees State Insurance Act, 1948 – ESI Rules, Benefits & Complete Guide

Key takeaways: 

• Employees state insurance act is an act made to provide certain benefits to the employees in case of sickness, maternity and for employment injury.
   
• Employees' state insurance act is an interesting prospect from both an employee’s and legal point of view. It was the beginning of formal social security in India. 
   
• ESI act of 1948, is executed through the ESI corporation and the Government takes control of almost every proceeding. 

Bonus tip:  According to a notification dated 10th December 2025-11th December 2025, new ESI will be applicable on only ₹21,000 wages. Also, bonus and HRA are excluded from the ESI. 

After Independence, the industrial sector of India expanded in the 1950s. Therefore, the Employees state insurance act of 1948 was made to protect the growing number of employees and to provide social security to them. 

The Employees state insurance act, 1948, is an act made to protect the employees working in any factory or establishment.

Imagine, you carry an umbrella to your office everyday. On sunny days it is not required but on rainy days, it is very helpful. In the same way, ESI Act, 1948 works. When you have no medical emergency, you work and contribute a small amount. But when you are sick or need maternity care, the ESI act gives you full medical support.

For example, you earn ₹21,000 from your job and you met with an unfortunate accident during the course of employment . The ESI act, 1948 will get you covered. Instead of spending thousands from your pocket, medical expenses will be covered under this Act.

What is the Employees State Insurance Act,1948?

The ESI Act,1948 acts as a Constitutional instrument because it provides insurance and medical support to the employees. Most of the proceeding control is in the hands of the Government and it contributes to the constitutionality of the Act. Insurance provided by the Act is listed in the seventh Schedule of the Indian Constitution and it can only be legislated by the Government.

Let’s understand the ESI act,1948 with the help of few examples: 

1- Karan works in a factory and earns ₹16,500 per month. The ESI Act applies on wages ₹21,000 or less than ₹21,000. Therefore, in this case, Karan is covered under the ESI Act,1948. 

2- Amit covers at an office and earns ₹18,000 per month. The office place is covered under the act. Therefore, according to the contribution share of both Amit (0.75%)  and the employer (3.25%), the total ESI amount per month will be ₹720. 

What is the application and scope of the ESI Act,1948?

The Employees State Insurance Act,1948 provides monetary aid to the employees in their medical emergency such as: 

1. sickness 
2. maternity leave
3. physical or mental disorders
4.  any kind of physical disability 
5. death

It is an Act made to save the working class from any financial problems arising from the above emergencies.

What are the benefits offered by the Employees State Insurance Act,1948?

The ESI act provides medical and cash benefits to the employees working in factories or any other establishment. 

Section 48 of the Act provides six benefits and they are: 

ESIC Medical benefits - insured employees and their families will receive medical coverage from day one of the employment. Even if the employee is retired or disabled permanently, he or the spouse will continue to receive medical care by paying a small annual fee of ₹120.

Cash Benefits during sickness- in case you are sick up to 91 days in a year, you will receive 70% of wage as sickness benefit. To qualify for this benefit, you must have worked at least 78 days in the last six months. 

Maternity benefits- you will receive your full salary during maternity leave and it is applicable for two pregnancies. To qualify for the benefit, you must have worked for at least 70 days in the past two contribution periods. 

Disability benefits- you will receive 90% of your salary until the recovery of temporary disability which happened during the course of employment. In case of permanent disability, you will get 90% of your salary every month for life. 

Dependent benefits- in case of your unfortunate demise during work, it acts like a health insurance to protect your dependents. 

Funeral expenses of ₹15,000 to the dependants from the first day of insurable employment. 

What is the rate of contribution under the Employees state Insurance act,1948?

The contribution includes both the employee and employer share. 

Employee contribution- 0.75% of monthly wages

Employers contribution- 3.25% of monthly wages 

This brings the total of 4% of the employees salary.

Conclusion : 

Overall, for the working class in India, the Employees State Insurance Act, 1948 is beneficial. The act has advantages for both, the employee as well as the employer. While employees are insured under the act and get monetary help in case of any medical emergency, employers are safeguarded from paying the compensation twice. The contribution rate of employees and the employer are revised from time to time. 

FAQs

1- What is the ESI scheme under the Employees State Insurance Act of 1948?

The Employees State Insurance State is a social security insurance made to protect the working class. The incidents include maternity care, sickness, disability and death due to employment injury. The act provides medical care for the employee as well as their dependents. 

2- What are the benefits of ESI ? Every month ₹360 is being deducted from salary for ESI. Can someone help me understand it?

ESI is a social security scheme for the working class under the Employees State Insurance Act of 1948. It provides monetary help in case of any medical emergency to the employees and their dependants. The amount deducted from your salary amount is the employee contribution which is 0.75% of your salary. 

3- I am a full time working employee and the health insurance from the company is around ₹3,00,000 to ₹5,00,000. What will happen if the company plan does not cover a serious illness or long stay at hospital? 

 In case your company health insurance is finished or the company rules do not cover the serious illness, the remaining expense has to be given by you. The employer in this case is not legally bound to pay for you beyond the policy. 

4- My employer insurance is ₹3,00,000 which I feel is low. I wanted to know if employer insurance is enough?

The health insurance of ₹3,00,000 is not enough. Therefore, you should consider having your own health insurance of at least ₹10,00,000-₹15,00,000. 

5- Is ESI compulsory for private companies and startups? 

Once private companies and startups meet the requirements of ESI Act of 1948, it becomes necessary for them to get their employees covered under the ESI Act.