1. Introduction

The Employees’ State Insurance (ESI) scheme is one of India’s most important social protection systems, offering medical care, cash benefits, and insurance coverage to millions of workers and their families. Under the Social Security Code, 2020, ESI provisions are consolidated and modernized under Chapter 4 (Sections 44–73).

ESI is designed with a simple objective: no worker or their family should suffer financially due to illness, maternity, disability, or death arising out of employment.

The Social Security Code maintains this core purpose while expanding coverage, simplifying compliance, and integrating digital systems to reduce delays and paperwork.

Hindi insight:

ESI का उद्देश्य है कि कर्मचारी और उसके परिवार को बीमारी, दुर्घटना या मातृत्व के समय आर्थिक मदद और चिकित्सा सुविधा मिले — और यह सब किफायती योगदान पर उपलब्ध हो।

2. Why ESI Needed Reform

While ESI has been a strong welfare mechanism since 1948, the earlier Act existed in isolation from other social security laws. This caused fragmented compliance, varying definitions of wages, and administrative complexity for employers who were simultaneously running PF, gratuity, maternity benefit, and compensation compliances.

By integrating ESI into the Social Security Code, the government has unified definitions, streamlined procedures, and created a complete ecosystem where medical care, insurance, pensions, gratuity, and PF operate with consistent rules.

This consolidation especially helps smaller establishments and startups, which often struggled with multi-law compliance in the past.

3. Applicability of ESI Under the Code (Chapter 4, Section 44)

ESI applies to:

• Every establishment with 10 or more employees, and
• Every employee earning wages within the government-prescribed ESI wage ceiling (currently ₹21,000 per month, but subject to revision)

The Code also allows the government to expand coverage to:

• Gig and platform workers (through separate schemes)
• Unorganized sector workers
• New sectors and industries not covered earlier

A notable shift is that ESI may eventually become universal across India as digital systems improve and wage definitions stabilize.

Hindi explanation:

जहाँ 10 या अधिक कर्मचारी हों, वहाँ ESI लागू होगा — और यह पूरे देश में धीरे-धीरे सार्वभौमिक रूप से लागू किया जा सकता है।

4. ESI Benefits Under the Social Security Code

ESI is unique because it offers a combination of medical, financial, and insurance benefits — all in one system and at an extremely affordable employee contribution rate.

Under the Code, ESI continues to provide:

Medical Benefits

Employees and their families receive full medical treatment through ESI hospitals and approved medical centers. This includes doctor consultations, medicines, diagnostics, hospitalization, surgeries, and follow-up care. There is no upper limit on medical expenses in most cases.

Sickness Benefit

Employees who cannot attend work due to illness receive a portion of their wage as cash compensation. This ensures that temporary sickness does not lead to severe financial hardship.

Maternity Benefit

Women employees receive maternity pay, pre-natal and post-natal care, and medical support.

Disablement Benefit

If a worker suffers a work-related injury or disability, ESI provides compensation, regardless of whether the employer was at fault.

Dependents’ Benefit

In case of the death of an employee due to employment injury, the family receives monthly financial support.

Rehabilitation Benefits

ESI also funds physical rehabilitation, prosthetics, and retraining for injured workers.

This combination of protections makes ESI one of India’s most comprehensive welfare systems.

5. Contribution Structure (Section 45)

ESI contributions are divided between employer and employee:

• Employer contribution: usually 3.25% of wages
• Employee contribution: usually 0.75% of wages

These rates are among the lowest in the world for a health insurance system that gives lifelong protection.

Even more importantly, employees earning below a certain threshold pay no contribution, ensuring universal access to medical care regardless of income level.

6. The Impact of the New Wage Definition on ESI

The Social Security Code’s unified wage definition ensures that ESI applicability becomes fairer and more transparent. Since Basic + DA must be at least 50% of total wages, fewer employees will be misclassified outside the wage ceiling.

This means:

• More employees become eligible for ESI
• Access to medical care becomes more widespread
• Employers need to track wage thresholds more accurately
• Payroll systems need to integrate the new wage logic

For workers, this change strengthens their healthcare security, especially during times of rising medical costs.

Hindi explanation:

नई वेतन परिभाषा से ESI कवरेज बढ़ेगा, जिससे अधिक कर्मचारियों को इलाज और बीमारी की आर्थिक सुरक्षा मिलेगी।

7. Administration Through ESIC (Sections 44–52)

The Employees’ State Insurance Corporation (ESIC) continues to administer the scheme. The Code strengthens ESIC’s role by:

• Allowing digital verification
• Enabling online claims
• Providing flexibility to expand ESI to new regions
• Improving medical infrastructure accountability
• Allowing special schemes for gig and unorganized workers

ESIC remains one of India’s most powerful and decentralized welfare agencies.

8. Maternity Benefits Under ESI

If a woman employee is covered under ESI, she receives maternity benefits entirely through ESIC:

• Cash compensation
• Medical support
• Pre & post-natal care
• Leave benefits

In such cases, the employer does not have to bear the maternity wage burden under the Maternity Benefit Chapter of the Code.

This distinction is important for HR and payroll teams to understand, because ESI-eligible women cannot be shifted to employer-funded maternity benefits unless legally required.

9. Role of Digital Compliance

The Social Security Code emphasizes digitization across all social security systems, including ESI. This includes:

• Aadhaar-based registration
• Digital claim submission
• Online contribution filing
• Real-time eligibility checks
• Reduction of paperwork
• Faster grievance redressal

Digital compliance removes many of the historical pain points employers faced, such as documentation errors and physical inspections.

10. Impact on Employers

For employers, the Code brings clarity and accountability. ESI compliance becomes more predictable due to unified wage definitions and digital systems. However, payroll costs may increase if more employees fall under the wage ceiling.

Employers must ensure:

• Timely contribution payments
• Accurate wage records
• Immediate notification of accidents
• Proper maintenance of digital records
• Verification of employee status

Non-compliance may attract penalties under Chapter 12.

11. Impact on Employees

ESI is among the most beneficial social security systems for workers. Under the Code, employees gain:

• Wider access to medical care
• Better financial support during sickness
• Maternity protection
• Disability coverage
• Support for dependent family members
• Protection from catastrophic healthcare expenses

For many working families, ESI acts as a lifeline during difficult times.

12. Penalties for ESI Non-Compliance (Chapter 12)

The Social Security Code imposes strict penalties for:

• Non-registration of eligible employees
• Delayed contribution payments
• Filing false records
• Concealing employee wages
• Denying benefits
• Failing to report accidents

These penalties include financial fines, interest penalties, and in severe or repeated cases, prosecution.

13. FAQs (With Chapter References)

FAQ 1: Is ESI mandatory for all employees?

Yes, for employees who fall within the wage ceiling and work in covered establishments.

Relevant: Section 44

FAQ 2: Can employees opt out of ESI?

No, if they are eligible under the wage ceiling.

Relevant: Section 44

FAQ 3: Does ESI replace maternity benefits?

Yes, if the woman is ESI-covered, ESIC provides maternity benefits instead of the employer.

Relevant: Sections 50–52

FAQ 4: What if an employer fails to register for ESI?

Employer may face penalties, and employees can claim benefits directly from ESIC.

Relevant: Chapter 12

FAQ 5: Does ESI cover family members?

Yes, ESI medical benefit covers spouses, children, and dependent parents.

Relevant: Section 46

14. Conclusion

The Social Security Code, 2020 strengthens India’s Employee State Insurance system by expanding coverage, digitizing processes, aligning wage definitions, and integrating ESI within a unified social security framework. For employees, this means better healthcare, income protection, and stronger family security. For employers, it means clearer compliance rules, reduced ambiguity, and a predictable health insurance structure for workers.

As medical costs continue to rise, ESI’s role becomes even more critical. The Social Security Code ensures that ESI remains accessible, transparent, and future-ready for India’s growing workforce.