ESIC Calculation as per New Labor Code

As you aware about the new code of wages which came nationwide on 21sr November 2025.

The Employee State Insurance Corporation ESIC is being operated under the Ministry of Labour & Employment Government of India, is committed to make implementation on social security coverage to every eligible worker across the nation.

As per the new rule the definition of wages has been changes some of the component has been considered and some has been removed for ESIC Gross on which ESIC of employee and employer used to be calculated.

Let see ..

What is included in Wages

Basic Salary, Dearness Allowance and Retaining allowance has been considered for ESIC Gross.

What is excluded from Wages

Employer’s contribution to any pension or provident fund, Gratuity payable on employment termination, Value of house accommodation, light, water, medical attendance, or other amenities/services & Any sum paid to the employee for special expenses incurred due to the nature of employment it all has been excluded apart from that below are some component which has been excluded.

• House Rent Allowance (HRA)
• Conveyance allowance
• value of any traveling concession
• Overtime allowance
• Any commission Any bonus

Conditional inclusions (the 50% rule)

If certain excluded payments exceed 50% of the total Gross, then excess amount is to be consider as remuneration and is added back for ESIC Gross.

We calculated ESIC at rate of 0.75% of wages for employee contribution and for Employer contribution it is 3.25% of wages where this is applicable to only those employee where ESIC gross is up to Rs 21000.

How to Calculate ESIC Wages

So as per code on Social security 2020 and New ESIC wages definition people are little confuse about how to figure out the ESIC wages on which ESIC has to be deducted both employee and employer. Let us understand it with example.

Scenario 1

An employee, Mr. Akash, has a total monthly remuneration of ₹20,000, which is below the ₹21,000 threshold of ESIC.

In this case, the actual exclusions (₹8,000) are less than the 50% limit ₹10,000). The ESI “wages” for calculation are the actual included components:

• Total ESI Wages: ₹12,000 (Basic + DA + Retaining Allowance)
• Employee ESI Contribution: 0.75% of ₹12,000 = ₹90
• Employer ESI Contribution: 3.25% of ₹12,000 = ₹390
• Total ESI Contribution: ₹480

Scenario 2

An employee, Mr Bikas, has a total monthly remuneration (TR) of ₹20,000. Her salary is structured differently.

Here, the actual exclusions (₹12,000) exceed the 50% limit (₹10,000) by ₹2,000. This excess amount must be added back to the “wages”:

• Total ESI Wages: ₹8,000 (Basic+DA+RA) + ₹2,000 (Excess Add-back) = ₹10,000
• Employee ESI Contribution: 0.75% of ₹10,000 = ₹75
• Employer ESI Contribution: 3.25% of ₹10,000 = ₹325
• Total ESI Contribution: ₹400

The Social Security Code, 2020 aims to standardize the wage base to ensure fair and consistent calculation of social security benefits, including ESI.

Scenario 3

Mr. Candy earns a total monthly remuneration (TR) of ₹20,000. Her structure has high allowances.

• Total ESI Wages: ₹9,000 (Basic + DA+RA) + ₹1,000 (Add-back) = ₹10,000
• Employee ESI Contribution: 0.75% of ₹10,000 = ₹75
• Employer ESI Contribution: 3.25% of ₹10,000 = ₹325 Key Takeaway

Even though her actual Basic Pay is low, the 50% rule ensures her statutory ESIC wage base is higher, leading to increased contributions compared to the pre-Code era

Scenario 4

Ms. Edirsh earns a total monthly remuneration (TR) of ₹46,000, which is above the ₹21,000 threshold. Her structure has also high allowances.

Total ESI Wages: ₹ 20,000 (Basic + DA) + ₹3,000 (Add-back) = ₹23,000 Which is above ₹21,000 ESIC wage limit, hence, Exempted from ESIC.

Scenario 5

Ms. Farida earns a total monthly remuneration (TR) of ₹30,000, which is above the ₹21,000 threshold. Her structure has also high allowances.

• Total ESI Wages: ₹ 12,000 (Basic + DA+RA) + ₹3,000 (Add-back) = ₹15,000 Which is below ESIC wages limit i.e ₹21,000.

Calculate ESI Contributions:

• Employee Share: 0.75% of ₹15,000 = ₹112.5
  • Employer Share: 3.25% of ₹15,000 = ₹487.5
  • Total ESI Deposit: ₹112.5 + ₹487.5 = ₹600

Scenario 6

Ms. Farzana earns a total monthly remuneration (TR) of ₹40,000, which is above the ₹21,000 threshold. Her structure has also high allowances.

• Total ESI Wages: ₹ 16,000 (Basic + DA) + ₹4,000 (Add-back) = ₹20,000 Which is below ESIC wages limit i.e ₹21,000.

Calculate ESI Contributions:

• Employee Share: 0.75% of ₹20,000 = ₹150
  • Employer Share: 3.25% of ₹20,000 = ₹650 Total ESI Deposit: ₹112.5 + ₹487.5 = ₹800

Notices…

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