Employee State Insurance (ESI)

The Employees’ State Insurance (ESI) is a comprehensive social security and health insurance scheme designed to provide medical care and financial protection to workers and their dependants in cases of sickness, maternity, employment injury, or death. It represents one of the earliest and most extensive social welfare programmes implemented by the Government of India for the organised workforce.
The scheme is administered by the Employees’ State Insurance Corporation (ESIC), an autonomous statutory body under the Ministry of Labour and Employment. It ensures that employees receive income security and healthcare benefits during periods of distress arising from illness, accidents, or occupational hazards.

Historical Background

The ESI scheme was conceptualised as part of India’s efforts to protect industrial workers from the uncertainties of life and work. The legal foundation for the scheme was laid through the Employees’ State Insurance Act, 1948, which came into force on 24 February 1952.
The Act was among the first social legislation in independent India, aimed at translating the Directive Principles of State Policy—specifically Article 41 of the Constitution—into practical welfare measures. Initially, it covered workers in a few factories in Kanpur and Delhi, but over time, its coverage expanded nationwide across sectors.
The introduction of ESI marked a major step in India’s commitment to social justice and welfare for industrial labour, providing a model for future social security initiatives.

Objectives of the ESI Scheme

The ESI scheme was established with the following objectives:

• To provide medical and cash benefits to employees in cases of sickness, maternity, or employment-related injury.
• To ensure income protection for workers and their dependants during temporary or permanent disability.
• To promote social security and welfare among the working population.
• To support the concept of tripartite contribution, involving employers, employees, and the state.
• To reduce economic vulnerability among low-income workers in the organised sector.

Coverage and Applicability

The ESI Act applies to:

• Factories and establishments employing 10 or more persons, such as shops, hotels, theatres, transport undertakings, and educational institutions.
• Employees earning up to ₹21,000 per month (₹25,000 for persons with disabilities).
• Both public and private sector organisations within notified areas where the scheme has been implemented.

The Act has been extended to almost all districts in India, covering millions of workers and their dependants. Over the decades, the scope of ESI has expanded to include a variety of establishments beyond traditional industries.

Contribution and Funding

The ESI scheme operates on the principle of self-financing social insurance, with contributions shared between employers and employees.
The contribution rates, revised periodically, are as follows:

• Employer’s contribution: 3.25% of the employee’s wages.
• Employee’s contribution: 0.75% of wages.

Thus, the total contribution amounts to 4% of wages, which funds the medical and cash benefits provided under the scheme. The State Governments contribute one-eighth of the cost of medical benefits, while the rest is met by the Employees’ State Insurance Corporation (ESIC).

Administration and Structure

The Employees’ State Insurance Corporation (ESIC), established under the ESI Act, is the governing body responsible for implementing and managing the scheme.

• Composition: The ESIC comprises representatives from employees, employers, the central and state governments, and the medical profession.
• Headquarters: Located in New Delhi, with regional and sub-regional offices across the country.
• Role: The Corporation manages funds, establishes hospitals and dispensaries, ensures benefit delivery, and enforces compliance with ESI provisions.

The scheme functions through a vast network of ESI hospitals, dispensaries, and insurance branches, providing both preventive and curative medical care.

Benefits under the ESI Scheme

The ESI scheme provides a comprehensive package of medical, cash, and social benefits to insured persons and their families.

1. Medical Benefit

• Full medical care to the insured person and dependants from day one of employment.
• Includes outpatient, inpatient, specialist, and super-speciality treatment.
• Maternity, immunisation, and preventive health services are also included.

2. Sickness Benefit

• Cash compensation at the rate of 70% of wages for up to 91 days in a year during certified sickness.
• Requires contribution for at least 78 days in a contribution period.
• Extended Sickness Benefit (ESB) for certain long-term diseases, payable for up to two years at 80% of wages.

3. Maternity Benefit

• For insured women, payable at 100% of wages for a maximum of 26 weeks for confinement, with additional leave for miscarriage or illness arising from pregnancy.

4. Disablement Benefit

• Temporary Disablement Benefit: Payable at 90% of wages for the entire period of certified temporary disability due to employment injury.
• Permanent Disablement Benefit: Lifelong monthly payment based on the degree of loss of earning capacity.

5. Dependants’ Benefit

• In case of death due to employment injury or occupational disease, dependants receive monthly pensions at the rate of 90% of the deceased’s wages.

6. Funeral Expenses

• A lump-sum payment of ₹15,000 (subject to revision) to the family or person performing the funeral rites.

7. Rehabilitation and Other Benefits

• Vocational rehabilitation, physical aids, and training for physically disabled insured persons.
• Confinement expenses for insured women or wives of insured persons where ESI medical facilities are unavailable.

Recent Reforms and Digital Initiatives

In recent years, ESIC has undertaken multiple initiatives to modernise and expand the scheme:

• Online Registration and Compliance: Simplified procedures through the ESIC portal under the Digital India initiative.
• Pehchan Smart Cards: For insured persons to access ESI services anywhere in India.
• Telemedicine Services: Virtual consultations introduced to enhance healthcare accessibility.
• Expansion of Medical Infrastructure: Construction of new hospitals, dispensaries, and model ESI centres across districts.
• Integration with Ayushman Bharat: Coordination between ESI hospitals and national health schemes to ensure wider coverage.

Significance of the ESI Scheme

The ESI scheme holds immense socio-economic importance as a pillar of industrial welfare and labour protection. Its benefits include:

• Providing social security and financial stability to millions of low- and middle-income workers.
• Reducing the economic burden of medical expenses and wage loss.
• Promoting industrial harmony by protecting workers against risks of employment injuries and illnesses.
• Encouraging labour productivity and morale through improved well-being.
• Serving as a model for social insurance in developing economies.

Challenges and Limitations

Despite its success, the ESI scheme faces certain operational and administrative challenges:

• Infrastructure Constraints: Overcrowded hospitals and shortage of medical professionals in some areas.
• Limited Awareness: Many eligible workers and employers remain unaware of benefits and procedures.
• Coverage Gaps: A large segment of India’s informal workforce remains outside the scheme.
• Administrative Delays: Slow claims processing and outdated record-keeping in some regions.
• Employer Non-Compliance: Instances of delayed or underreported contributions.

Addressing these issues through digital transformation, awareness campaigns, and expansion to informal sectors is crucial for enhancing the scheme’s effectiveness.

Future Outlook

The Employees’ State Insurance Scheme continues to evolve with changing socio-economic conditions. The government plans to:

• Extend ESI coverage to all 740 districts of India.
• Include gig workers and platform-based employees under social security provisions.
• Digitise health records for insured persons to improve service delivery.
• Enhance the quality of medical facilities and integrate with national health systems.
• Encourage tripartite participation to ensure shared responsibility among employers, employees, and the state.