ESI Compliance in India: ESIC Applicability, Eligibility, Contribution Rates,

ESI compliance in India is not complicated until it is. The thresholds look simple on paper: 10 employees, ₹21,000 salary ceiling, 4% total contribution. What catches startups is the second layer. The continuation rule prevents mid-period deregistration. The wage component rules differ from PF logic. Contract worker liability transfers to the principal employer. A December 2025 regulatory shift changed how the contribution base is computed. ESIC notices, arrears, and inspection responses are among the most common compliance fires which occur for startups and small businesses in India. This article covers ESIC related startup compliance in India including the transitional uncertainties from the Labour Code rollout that most guides are glossing over.

What is the ESIC and What Governs it?

The Employees’ State Insurance Corporation (ESIC) is an autonomous statutory body constituted under the Employees’ State Insurance Act, 1948 (ESI Act). It operates under the Ministry of Labour and Employment, Government of India, with headquarters in New Delhi and 65 regional and sub-regional offices across states.

The ESI Act 1948 remains the primary enforcement statute. The Code on Social Security, 2020 (Social Security Code) came into effect on 21 November 2025, consolidating nine social security laws including the ESI Act. The Social Security Code is now operative as a matter of central law. Central implementing rules were finalised around April 2026, and state-level rules are at different stages of notification across states. During the transition, ESIC has been administering specific provisions of the Code, notably the revised wage definition, through circulars issued in December 2025. The December 2025 wage changes are in force. The geographic expansion of ESIC coverage is in force. Certain provisions that require state rule notification (including some gig worker contribution mechanics) are still rolling out state by state.

West Bengal is the most notable exception: as of May 2026, it has not notified state rules under the Labour Codes, and Minister Mansukh Mandaviya confirmed in May 2026 that workers there are not yet receiving full Code-based ESIC protections.

The scheme operates on two contribution periods each year:

Contribution period	Duration	Corresponding benefit period
First half	1 April to 30 September	1 January to 30 June (following year)
Second half	1 October to 31 March	1 July to 31 December (same year)

The six-month lag between contribution and benefit period governs when employees can claim cash benefits. An employee who contributed for 78+ days in the April to September period can claim sickness benefit starting January of the following year.

When does ESIC apply to your establishment?

The ESI scheme applies to every non-seasonal factory and establishment with 10 or more employees. In some states and union territories, the threshold is 20 employees. The 10-employee threshold applies in Maharashtra, Karnataka, Delhi, Tamil Nadu, Telangana, and most major states.

Under the Social Security Code, ESIC coverage has been extended nationwide to all districts, removing the earlier “notified area” restriction that had left some tier-2 and tier-3 city establishments outside the scheme. If your business is based in a city or district that was previously outside ESIC’s notified area, you may now be covered for the first time.

Establishment types and applicability:

Establishment type	Threshold
Factories under the Factories Act, 1948	10 employees (most states)
Shops and commercial establishments	10 employees (most states)
Hotels, restaurants, cinemas	10 employees
Road motor transport undertakings	10 employees
Private educational institutions	10 employees
Private medical institutions	10 employees
Newspaper establishments	10 employees
IT/software companies and services firms	10 employees
States with 20-employee threshold (check your state notification)	20 employees

Once your establishment becomes applicable, it stays covered even if headcount drops below the threshold later. This matters for startups that reduce headcount after a layoff round: you cannot deregister from ESIC on the basis of a lower headcount post-trigger.

An exemption under Section 87 of the ESI Act exists for establishments covered by a comparable scheme notified by the state government. In practice, this is rarely available for private companies and requires specific notification, not just a company health insurance policy.

How is the 10-employee headcount calculated?

The count includes every person who works in or for the establishment on wages: permanent, contractual, temporary, casual, fixed-term, and apprentices not formally registered under the Apprenticeship Act, 1961.

Employees labelled “interns” who receive a stipend and perform work benefiting the establishment count unless they are formally apprentices under the Apprenticeship Act. Contract workers engaged through a staffing firm or third-party contractor for work that is part of the principal business activity count in the headcount, and the principal employer bears joint liability for their ESI compliance if the contractor defaults.

What changed under the Social Security Code for coverage scope?

Three changes are relevant for startup founders.

Geographic expansion: ESIC now covers all of India, not just notified areas. Businesses in areas previously outside the ESI notification are covered from the date their state notifies the Code, which most major states have done as of mid-2026.

Gig and platform workers: The Social Security Code formally recognises gig workers and platform workers for the first time. Aggregators (app-based platforms in delivery, logistics, cab services, freelance services) are required to contribute 1% to 2% of their annual turnover toward the social security fund for these workers, capped at 5% of the amount paid to them. The specific contribution rates are subject to central government notification, which has not been issued as of June 2026. The liability framework is law; the mechanics are pending. Startups that use delivery aggregators or gig economy arrangements should track this actively.

Commuting accidents: Under the Social Security Code, accidents sustained by an employee while travelling between their home and workplace now count as employment injuries, entitling the insured person to disablement benefit. This was not the position under the original ESI Act 1948 and is a meaningful expansion of benefit coverage.

Which employees are eligible for ESI coverage?

Once your establishment is covered, all employees whose monthly wages do not exceed ₹21,000 are mandatorily insured. For persons with disabilities, the ceiling is ₹25,000.

Eligibility parameters:

Parameter	Current threshold (June 2026)
Monthly wage ceiling, general employees	₹21,000
Monthly wage ceiling, persons with disability	₹25,000
Daily wage exemption from employee contribution	Up to ₹176 per day average
Employee categories formally excluded	Apprentices under Apprenticeship Act, 1961

Is the ₹21,000 ceiling going to change?

This is an active question. The ₹21,000 ceiling has been unchanged since January 2017. Under the Social Security Code, the Central Government can revise the wage ceiling without a separate parliamentary amendment. Industry bodies and the Ministry of Labour and Employment have been discussing a hike to ₹25,000 or ₹30,000 since 2024. As of May 2026, no formal notification has been issued. A revision remains likely in the near term and would bring approximately 10 million additional employees under mandatory ESIC coverage. Monitor the Ministry of Labour and Employment website for any notification.

What counts as Wages for ESI: the December 2025 shift

This is the most operationally significant change for startups with allowance-heavy salary structures.

Before December 2025: gross wages

Under the original Section 2(22) of the ESI Act, “wages” meant all remuneration paid in cash, including basic salary, dearness allowance, HRA, city compensatory allowance, overtime, and regular allowances. ESI was calculated on gross wages.

From December 2025: the Social Security Code wage definition

The ESIC circular of 10 December 2025 operationalised Section 2(88) of the Code on Social Security, 2020 for ESI wage computation. Under this definition:

• Wages means basic wages + dearness allowance + retaining allowance
• All other allowances (HRA, conveyance, special allowance, food allowance, etc.) are excluded from wages, but only up to a limit
• The 50% rule: if total excluded allowances exceed 50% of total remuneration, the excess is added back to wages

The central rules finalised around April 2026 confirmed this framework. State rules are at varying stages, but the December 2025 ESIC circular is the operative administrative guidance.

What is included and excluded under the new definition:

Component	Treatment
Basic salary	Included in wages
Dearness allowance (DA)	Included in wages
Retaining allowance	Included in wages
HRA	Excluded (subject to 50% cap)
Conveyance allowance	Excluded (subject to 50% cap)
Special allowance	Excluded (subject to 50% cap)
Overtime wages	Included, paid on wages computed for that period
Annual bonus (Bonus Act)	Excluded
Gratuity	Excluded
Reimbursements against actual bills	Excluded
Employer PF contribution	Excluded
Leave encashment (on resignation or retirement)	Excluded

The 50% rule worked through

The 50% cap prevents employers from structuring salaries with an artificially low Basic to reduce ESI (and PF) liability.

Example A: allowances below the cap Employee total remuneration: ₹20,000 Basic: ₹11,000 | DA: ₹1,000 | HRA: ₹5,000 | Special Allowance: ₹3,000 Total allowances (excluding Basic and DA): ₹8,000 50% of total remuneration: ₹10,000 Since ₹8,000 is below ₹10,000, no excess to add back. Wages for ESIC: ₹12,000 (Basic + DA) Employee is covered (₹12,000 is below ₹21,000)

Example B: allowances exceeding the cap Employee total remuneration: ₹25,000 Basic: ₹8,000 | HRA: ₹8,000 | Special Allowance: ₹6,000 | Conveyance: ₹3,000 Total allowances (excluding Basic): ₹17,000 50% of ₹25,000: ₹12,500 Excess: ₹17,000 minus ₹12,500 = ₹4,500 (added back to wages) Wages for ESIC: ₹8,000 + ₹4,500 = ₹12,500 Employee is now ESIC-eligible despite gross salary of ₹25,000

This second scenario explains why ESIC coverage is expanding. Employees who previously appeared to be above the ₹21,000 gross ceiling now fall within it when assessed on the new Basic+DA basis with the add-back applied.

A note on transitional uncertainty

Some payroll software vendors updated to the new wage definition in December 2025, others in January or February 2026. If you process payroll in-house or use a legacy system, audit whether your ESI computation has moved to the Section 2(88) basis. The risk runs in both directions: under the new definition, some employees who were previously covered (and had ESI deducted on gross) may now have a lower wage base, creating an over-deduction situation. Others who were previously outside coverage on gross wages fall back in under the 50% rule, creating under-deduction. Both produce ESIC liabilities.

ESI contribution rates 2026

Current rates (effective 01/07/2019, confirmed unchanged for FY 2026-27):

Contributor	Rate	Example: employee wages ₹15,000/month
Employer	3.25% of wages	₹487.50
Employee	0.75% of wages	₹112.50
Total monthly deposit	4.00%	₹600
Employee exemption threshold	Daily average wage up to ₹176	Employer still contributes 3.25%

These rates were last reduced on 1 July 2019 from 4.75% (employer) and 1.75% (employee), a combined reduction from 6.5% to 4%. No change has been announced for FY 2026-27.

How to calculate the monthly contribution

Formula:

ESI wage base = Basic + DA + retaining allowance + (excess allowances if >50% of total remuneration)
Employer contribution = ESI wage base × 3.25%
Employee contribution = ESI wage base × 0.75%
Monthly deposit = ESI wage base × 4%

Worked example (post-December 2025 rules):

An engineer at your Bengaluru startup earns ₹18,000 per month: Basic ₹10,000 + HRA ₹4,000 + Special Allowance ₹4,000.

Allowances (HRA + Special): ₹8,000 50% of ₹18,000: ₹9,000 Since ₹8,000 is below ₹9,000, no excess added back. ESI wage base: ₹10,000 (Basic only, as DA is zero here)

Employer: ₹10,000 × 3.25% = ₹325 Employee: ₹10,000 × 0.75% = ₹75 Monthly deposit: ₹400

If your payroll software is still using gross wages (₹18,000), it is computing employer contribution at ₹585 and employee at ₹135, over-deducting by ₹185 per month for this employee.

What about overtime wages?

Overtime is included in wages for ESIC calculation. If an employee earns ₹10,000 Basic and ₹2,000 in overtime in a given month, the ESIC computation includes both. The employee remains covered because their base wages at the time of joining were within ₹21,000, even if the overtime pushes their total above it in a particular month.

The continuation rule: one of the most common errors at startups

When an employee’s wages cross ₹21,000, many founders or HR leads stop ESI deductions immediately. That is incorrect under Section 2(9) of the ESI Act.

Once an employee becomes an insured person in a contribution period, coverage continues until the end of that contribution period, regardless of mid-period salary changes.

How it works in practice:

• Employee earns ₹19,500 in April 2026 (covered under ESI for the April to September period)
• In June 2026, their salary increases to ₹22,000
• ESI deductions must continue through 30 September 2026
• From 1 October 2026, the next contribution period, ESI deductions stop

The reverse also applies: if an employee joins at ₹22,000 (not covered) and their salary reduces to ₹20,000, they become coverable from the start of the next contribution period.

ESIC’s half-yearly returns are reconciled against payroll data, and mid-period coverage breaks are one of the primary audit triggers.

Full ESIC benefits in 2026: what your employees actually get

The ESIC scheme provides one of the most comprehensive social security packages in the organised sector. The complete benefits picture is below, including the two changes introduced under the Social Security Code that most employers have not yet registered.

ESIC benefits table:

Benefit	What it covers	Payment rate	Duration	Contribution requirement
Medical benefit	Full medical care (OPD, IPD, surgery, specialist) for insured person and entire family	Free at ESIC hospitals and empanelled facilities	No limit	From day one
Sickness benefit	Cash compensation during certified illness	70% of average daily wages	Up to 91 days per year	78 contribution days in relevant contribution period
Extended sickness benefit	34 specified long-term diseases (TB, cancer, mental illness, etc.)	80% of average daily wages	Up to 2 years	2 years of insurable employment + 156 contribution days in preceding 4 periods
Enhanced sickness benefit	For sterilisation (male or female)	100% of average daily wages	7 days (vasectomy) / 14 days (tubectomy)	Same as sickness benefit
Maternity benefit	Full wages during maternity leave	100% of average daily wages	26 weeks for childbirth; 6 weeks for miscarriage; 12 weeks for adoption	70 contribution days in the two preceding contribution periods
Disablement benefit (temporary)	Injury or illness during course of employment	90% of average daily wages	Duration of disablement	From day one, no minimum contribution
Disablement benefit (permanent)	Permanent injury in employment	90% of average daily wages (proportionate for partial disability)	Lifetime	From day one
Dependent benefit	For family of insured person who dies due to employment injury	90% of average daily wages (shared among dependants per schedule)	Lifetime for widow; till majority for children	From day one
Funeral expenses	One-time payment to family or person performing last rites	₹15,000 lump sum	One-time	From day one
Unemployment allowance (ABVKY)	For involuntary unemployment	50% of average daily wages	Up to 90 days, once in a lifetime	Minimum 1 year of insurable employment + 78 contribution days in 12 months prior to unemployment

Note on the commuting accident change: Under the Social Security Code, 2020, accidents during travel between home and workplace now qualify as employment injuries. An employee injured in a road accident while commuting to your office is entitled to disablement benefit from day one. This was not the case under the original ESI Act and is a meaningful expansion for both employers (in terms of claims exposure) and employees (in terms of coverage).

Note on maternity benefit interaction: An employer covered under ESIC is exempt from the Maternity Benefit Act, 1961 for insured employees. ESIC pays the maternity benefit directly to the insured woman. For employees earning above ₹21,000 (not covered under ESIC), the Maternity Benefit Act applies separately and the employer bears the cost.

How to register your establishment with ESIC

Registration is mandatory within 15 days of becoming applicable. Companies incorporated through the MCA portal after 23 February 2020 may be auto-registered if they qualify. If you received an auto-registration notification from ESIC at incorporation, that code is active and you need to log in and start contributing.

For all other establishments, the process is fully online at esic.gov.in:

Step 1: Sign up at esic.gov.in under “Employer Login.” Enter business PAN, mobile number, and email. Verify via OTP.

Step 2: Log in and select “New Employer Registration.” Fill Form-01 with establishment name, address, PAN/TAN, bank details, employee count, and nature of business. Aadhaar linkage for the authorised signatory speeds processing.

Step 3: Upload documents: Certificate of Incorporation (or Partnership Deed/Registration Certificate), PAN card of business and authorised signatory, address proof of establishment (electricity bill, rent agreement, or property tax receipt), bank cancellation cheque, and MOA and AOA for companies.

Step 4: Deposit the initial six-month advance contribution. ESIC issues a system-generated Registration Letter (C-11) containing your 17-digit Employer Code.

Step 5: Register each eligible employee. Employees receive a 13-digit Insurance Number and a PeHchan Card enabling cashless treatment at ESIC empanelled hospitals.

Typical turnaround: 7 to 15 working days. Under SPREE 2025 (operational July 2025 to January 2026), new registrations during that window were exempt from inspection and past-dues demands. SPREE 2025 has now closed. Any establishment that did not register under SPREE is now subject to normal enforcement, including retrospective coverage demands, interest at 12% per annum, and damages.

ESIC compliance calendar 2026-27

Keeping track of ESIC deadlines alongside your other annual obligations is easier with a single view. The compliance calendar for 2026 covers ESIC alongside GST, MCA, TDS, and PF filing dates in one place.

Obligation	Due date	Statute / regulation
Register establishment after crossing threshold	Within 15 days of becoming applicable	Section 2A, ESI Act
Register new eligible employee	Within 10 days of joining	Regulation 14, ESI (General) Regulations 1950
Deduct employee contribution	On the date wages are paid	Section 40, ESI Act
Deposit contributions for April 2026	By 15 May 2026	Section 40, ESI Act
Deposit contributions for May 2026	By 15 June 2026	Section 40, ESI Act
Deposit contributions for June 2026	By 15 July 2026	Section 40, ESI Act
Deposit contributions for July 2026	By 15 August 2026	Section 40, ESI Act
Deposit contributions for August 2026	By 15 September 2026	Section 40, ESI Act
Deposit contributions for September 2026	By 15 October 2026	Section 40, ESI Act
Half-yearly return (April to September 2026)	By 11 November 2026	Regulation 26, ESI (General) Regulations 1950
Half-yearly return (October 2026 to March 2027)	By 11 May 2027	Regulation 26
Annual Form 01-A	By 31 January 2027 (for calendar year 2026)	Regulation 26
ESIC Amnesty Scheme 2025 settlement deadline	30 September 2026	ESIC 196th Meeting Resolution, 27 June 2025

Penalties for non-compliance

The penalty framework under the ESI Act is both financial and criminal. Directors and founders face personal liability under the criminal provisions.

Financial exposure:

Default	Penalty
Late deposit (after the 15th)	Simple interest at 12% per annum from due date (Section 85B)
Damages on late payment	Up to 25% of contribution arrears for delays under 2 months; up to 35% for persistent default (Section 85B, ESIC determination)
Non-registration after threshold	Retrospective contribution demand from the date of applicability plus interest and damages

Criminal liability under the ESI Act:

Under Section 85, any employer who fails to pay contributions, submits false information, obstructs an ESIC inspector, or fails to maintain required registers faces imprisonment up to two years and/or a fine up to ₹10,000. Under Section 85A, a second conviction carries a minimum of three months imprisonment extendable to three years.

Under Section 85C, if a court directs payment within a specified period and the employer still defaults, an additional fine of up to ₹1,000 per day of continuing non-compliance runs alongside the original imprisonment.

Under the Social Security Code, the penalty regime has been further strengthened, with fines for non-compliance in certain categories now extendable to ₹20 lakhs. The specific enhanced penalty provisions under the Code are being operationalised through the finalised central rules.

ESIC also has the power to attach and sell property of defaulting employers under Section 45-B of the ESI Act to recover dues.

Prosecution requires prior sanction: Under Section 86 of the ESI Act, no criminal prosecution can be initiated without the prior sanction of the Insurance Commissioner. This is a procedural safeguard, not a substantive one. It does not prevent financial penalties, interest, or asset attachment.

ESIC Amnesty Scheme 2025: open until 30 September 2026

ESIC’s 196th Meeting on 27 June 2025 approved a formal amnesty scheme for employers with pending disputes and criminal cases. The scheme is separate from SPREE 2025, which was a registration drive that closed in January 2026.

The Amnesty Scheme covers:

• Employers with pending cases under Sections 75, 82, 84, 85, and 85A of the ESI Act
• Insured persons with disputes over incorrect declarations
• Certain petitions under Article 226 related to Sections 75 and 82

Settlement terms:

• Deposit the principal contribution amount in full
• Damages are substantially waived (for damages-only disputes, pay 10% of the determined damages amount)
• For prosecution under Sections 85/85A, criminal proceedings are withdrawn on payment and compliance undertaking

The scheme window closes on 30 September 2026. If you have received an ESIC assessment, show-cause notice, or are party to any pending ESIC proceedings, a structured settlement under the amnesty typically results in a significantly lower outflow than contested proceedings.

Five compliance mistakes that specifically hit startups

Mistake 1: Not counting contract workers and on-site staffing toward your threshold

A 12-person startup with 8 full-time employees, 2 on-site contract developers deployed by a staffing firm, and 2 interns not registered under the Apprenticeship Act has 12 covered persons for applicability. Under Regulation 100 of the ESI (General) Regulations, 1950, if the contractor defaults on ESI for workers deployed at your premises for work connected to your principal business, liability passes to you as principal employer. You can recover from the contractor, but ESIC pursues you first.

Mistake 2: Using basic salary to test the ₹21,000 ceiling

ESI eligibility is assessed against the Code wage definition, not basic salary alone. An employee with basic ₹16,000 and HRA ₹6,000 has gross wages of ₹22,000 and falls outside coverage. The same employee assessed on the new Code definition may have wages of ₹16,000 (Basic only, if allowances are below the 50% cap), pulling them back into coverage. Both directions cause errors. PF logic, which uses basic salary, does not apply to ESI.

Mistake 3: Stopping ESI deductions when salary crosses ₹21,000 mid-period

The continuation rule under Section 2(9) requires coverage through the end of the contribution period in which the salary crossed the ceiling. Stopping deductions in June when the April to September period is still running creates a contributions shortfall that appears in the half-yearly return reconciliation. ESIC inspectors are trained to identify this pattern.

Mistake 4: Treating all allowances as excluded under the new Code definition

The 50% cap rule means a significant portion of allowances can be added back to wages if the allowance-to-total-remuneration ratio is high. Startup salary structures with a low basic and high special allowance, stock adjustment allowance, or performance allowance tend to trigger the add-back. If your Basic is below 50% of gross CTC, assume you need a wage audit.

Mistake 5: Assuming ESIC does not apply to tech, SaaS, or service companies

ESIC is not a manufacturing-only obligation. IT companies, SaaS startups, fintech firms, D2C brands, media companies, edtech platforms, and professional services firms are all covered establishments under Section 1(5) of the ESI Act if they employ 10 or more persons. The original confusion came from the “notified area” restriction in the ESI Act which excluded some locations. The Social Security Code removed geographic restrictions. If your business is an organised-sector employer with 10 or more employees anywhere in India, you are covered.

What ESIC means for your cost structure

For a startup with 15 employees each earning ₹14,000 per month in wages, the monthly employer ESIC cost is:

15 × ₹14,000 × 3.25% = ₹6,825 per month, or ₹81,900 per year

Unlike PF, where you can cap the employer contribution at the statutory wage ceiling of ₹15,000 basic, ESIC has no such ceiling option. Every rupee of wages up to ₹21,000 (or the applicable Code definition) is fully subject to the 3.25% employer contribution. Once an employee’s wages exceed ₹21,000, the employer contribution for that employee drops to zero, which actually reduces total employer cost per employee at that salary level. That is the inverse of what many founders expect.

A funded startup heading from 8 to 15 employees crosses the ESIC threshold. The incremental employer cost from crossing that threshold (gaining ESIC liability on all 15 employees, assuming wages of ₹15,000 each) is approximately ₹7,312 per month. That is a compliance cost, and it also means your employees and their families gain access to medical care, sickness benefits, maternity cover, and disablement protection from day one.

For startups running lean finance operations, payroll outsourcing for startups is one option to keep ESIC and PF computations accurate without building an in-house payroll function. Separately, GST compliance for startups follows a different timeline and penalty structure but sits alongside ESIC in the same monthly compliance cycle.

Case study

Situation: Series A D2C founder based in Mumbai, 24-employee team (15 full-time, 9 on fixed-term contracts through a staffing firm), operations commenced 20 months prior.

Challenge: ESIC had auto-registered the company at MCA incorporation. The founder was not aware, had not activated the registration, and had not deposited contributions. An ESIC inspection flagged 18 months of arrears across 13 eligible employees (the 9 contract workers were initially included as well). ESIC issued a Section 45-A assessment for approximately ₹5.3 lakhs covering contributions, 25% damages, and 12% interest.

What Treelife did: Reviewed the assessment, verified which contract employees had been covered by the staffing firm (reducing the count from 9 to 4), prepared a revised computation and filed a response to the 45-A order. Applied under the Amnesty Scheme 2025 for the pre-October 2025 balances. Updated the salary structure audit to apply the December 2025 Labour Code wage definition for going-forward payroll.

Outcome: Settlement at ₹2.8 lakhs, principal contributions on the correct roster plus 10% of revised damages under the amnesty scheme. Criminal proceedings withdrawn. Going-forward payroll corrected for the new wage base.

FAQs on ESI Compliance for Startups and Businesses

Q: Does ESI apply to my private limited company if none of my employees work in a factory?
A: Yes. The ESI Act and the Social Security Code cover all establishments, not just factories, once you employ 10 or more persons. IT companies, fintech firms, D2C brands, and professional services firms are all covered. Section 1(5) of the ESI Act and the Social Security Code’s expanded definition confirm this.

Q: My startup has 8 permanent employees and 3 contractual workers from a staffing vendor. Am I covered under ESIC?
A: Almost certainly yes. If the 3 contractual workers perform work connected to your principal business activity, they count toward the 10-person threshold. Principal employer liability under Regulation 100 of the ESI (General) Regulations, 1950 means you are responsible for their ESI compliance if the staffing vendor defaults.

Q: We have been paying ESI on gross wages since April 2026. Should we have switched to the new Code definition in December 2025?
A: The December 2025 ESIC circular operationalised the Section 2(88) wage definition from the December 2025 payroll cycle. If you have been computing ESI on gross wages through FY 2026-27, audit each employee’s salary structure. For employees where the new definition produces a lower wage base than gross, you have over-deducted. For employees where the 50% cap triggers an add-back, you have under-deducted. Pay the differential with interest.

Q: Is ESI applicable to remote employees who work from home in a different state?
A: Coverage attaches to the insured person, not to the physical work location. All eligible employees of a covered establishment are covered regardless of where they work. Your single ESIC employer code covers all employees across locations. For employees working in states where ESIC implementation is still transitioning (West Bengal as of June 2026), check with your compliance advisor on state-specific rule notification status.

Q: What happens if an employee’s salary crosses ₹21,000 in the middle of a contribution period?
A: The continuation rule under Section 2(9) requires that coverage continues until the end of the current contribution period (either 30 September or 31 March). ESI deductions must continue through the end of that period. Coverage terminates from the start of the following contribution period when wages are confirmed above ₹21,000.

Q: Our employees are on equity-heavy, low-fixed-salary structures. Does ESIC apply to ESOP vesting?
A: No. ESOP vestings and exercise gains are not “wages” under Section 2(22) of the ESI Act or Section 2(88) of the Social Security Code. Wages must be remuneration paid in cash for the purpose of employment. Stock options are capital in nature and are not included in the ESIC wage base.

Q: Do I need to pay ESIC for employees who use our private group health insurance instead?
A: Yes. A company-provided health insurance policy does not substitute for ESIC. The exemption under Section 87 of the ESI Act requires a specific state government notification that the establishment is covered by a comparable scheme. No blanket exemption exists for private insurance. Both obligations run concurrently.

Q: What are the mandatory registers an employer must maintain for ESIC?
A: Under Regulation 32 of the ESI (General) Regulations, 1950, you must maintain: Attendance Register (Form 12), Wage Register, Accident Register, and Inspection Book. Under the Social Security Code, records are expected to be maintained digitally. All records must be available for inspection by an ESIC Inspector-cum-Facilitator and retained for at least five years.

Q: Is the employer’s ESIC contribution deductible for income tax?
A: Yes. The employer’s 3.25% contribution is a deductible business expense under Section 37(1) of the Income Tax Act, 1961. The employee’s 0.75% contribution qualifies under Section 80D as part of the overall health insurance deduction (subject to the ₹25,000 annual limit for self and family).

Q: The proposed wage ceiling hike to ₹25,000: if and when it comes, do I need to re-enrol employees who previously exited coverage?
A: Yes. If the ceiling is raised, employees earning between ₹21,001 and the new ceiling amount will become newly eligible at the start of the first contribution period following the notification. Your payroll and ESIC portal will need to be updated to include them, and new insurance numbers issued. Treelife monitors MoLE notifications for this and will flag it when the gazette notification is published.

Q: We used to keep Basic salary at 30% of CTC to reduce ESI and PF liability. Is that still valid?
A: No, for both ESI and PF. Under Section 2(88) of the Social Security Code, if your allowances exceed 50% of total remuneration, the excess is added back to wages for ESIC computation. Separately, for PF, the same 50% rule applies under the Code on Wages. A Basic at 30% of CTC with allowances at 70% means 20% of the total CTC gets added back to wages for both ESI and PF purposes. The salary structuring approach that was widespread before November 2025 is no longer effective and carries inspection risk under both ESIC and EPFO.

Q: Can ESIC freeze our company’s bank accounts for non-payment?
A: Yes. Under Section 45-B of the ESI Act, ESIC has the power to recover dues by attaching and selling property, including bank accounts. This power is used for sustained non-payment and is typically preceded by a Section 45-A assessment order. Responding to ESIC notices promptly prevents escalation to attachment proceedings.

Regulatory references:

• Employees’ State Insurance Act, 1948: Sections 1(5), 2(9), 2(22), 2A, 40, 45-A, 45-B, 85, 85A, 85B, 85C, 86, 87
• ESI (General) Regulations, 1950: Regulations 14, 26, 32, 100
• ESI (Amendment) Act, 1975: Sections 85A, 85B, 85C introduced
• Code on Social Security, 2020: Sections 2(14), 2(88), 114
• Code on Wages, 2019: wage definition provisions
• ESIC Circular dated 10 December 2025: operationalisation of Social Security Code wage definition for ESIC
• ESIC Circular dated 11 December 2025: implementing notifications
• ESIC 196th Meeting Resolution, 27 June 2025: SPREE 2025 and Amnesty Scheme 2025 approval
• PIB Press Release dated 01 January 2026: SPREE 2025 extended to 31 January 2026
• Official Gazette Notification dated 21 November 2025: Labour Codes effective date
• Draft Central Rules under Social Security Code 2020 notified 30 December 2025 (finalised circa April 2026)
• Ministry of Labour and Employment Press Release, May 2026: West Bengal Labour Codes implementation status