ESI, and the rule that causes the shortfall notice
Medical and cash benefits funded by employer and employee contributions — where eligibility is tested at the start of a contribution period, not month by month.
What it is
Employees' State Insurance: 0.75% from the employee, 3.25% from the employer, on wages up to the limit.
The periods
April–September and October–March. Eligibility is fixed at the start of each.
The trap
Re-testing eligibility every month. Someone crossing the limit mid-period stays covered until it ends.
ESI provides medical and cash benefits to employees earning up to the wage limit. The employee contributes 0.75% of wages and the employer 3.25%. Applicability depends on establishment coverage and the employee’s wages at the start of a contribution period.
How it works in practice
On ₹18,000 wages, the employee pays ₹135 and the employer ₹585 a month.
What to watch for
Eligibility is tested at the start of a contribution period, not monthly. Someone who crosses the limit mid-period stays covered until that period ends — missing this causes the classic ESI shortfall notice.
How Klok handles it
Klok applies contribution-period stickiness automatically instead of re-testing each month.
ESI (Employees’ State Insurance) FAQs
An employee crossed the wage limit in July. Do we stop deducting?
No. Contribution continues to the end of the period — in that case to 30 September. Stopping in July is the single most common cause of an ESI shortfall notice.
Does ESI apply to every establishment?
It applies where the establishment is covered and located in an implemented area, subject to the employee-count threshold. Coverage is establishment-level first, employee-level second.
Which wages does ESI apply to?
Broadly, gross wages excluding specified items. It is a wider base than PF wages, which is why the two figures on a payslip rarely match.
Two of our sites are in different districts. Does ESI apply to both?
Not automatically. Coverage follows the implemented area, so one location can be covered while another is not. Run the check per workplace rather than per company — treating a head-office answer as the group answer is how arrears build up quietly at a branch.
An employee is covered under ESI. Do we still need medical insurance for them?
Commercially that is your call, but be aware you are paying twice for overlapping cover. Most employers keep group medical for employees above the wage limit and rely on ESI below it. The mistake is buying a blanket policy without checking who is already covered.
Someone joined mid-contribution-period. Which period do they belong to?
They enter the period in progress and their contribution runs to its end, exactly like anyone else. Joining date does not create a private period for that person — a common misreading that puts a first-month contribution in the wrong return.
We deducted ESI from someone who was never eligible. How do we fix it?
Refund the employee and correct the return rather than adjusting silently in the next month. An over-deduction that is netted off later leaves both the register and the employee's statement wrong for the period, which is exactly what an inspection looks at.
Does ESI stop the day an employee resigns?
Contribution is due on wages paid for the period they worked, including the final month. Exit does not end the obligation early — and the contribution period rule still applies, so a resignation mid-period does not cut the deduction short.
Stop calculating this by hand
Klok computes it from your own attendance and salary data, every month, with the working shown.