ESIC Wage Ceiling Increase: Proposed Hike to ₹25,000–₹30,000 and Its Impact on Workers

Introduction

The Employees’ State Insurance Corporation stands as one of India’s pioneering social security institutions, established through the Employees’ State Insurance Act of 1948. This legislative framework emerged from recommendations made by Professor B.P. Adarkar in 1944, who envisioned creating a protective shield for workers against financial hardships arising from sickness, maternity, and employment injuries. Recent developments indicate a proposed increase in the ESIC wage ceiling, which promises to expand coverage to millions of additional workers across India, marking a transformative phase in the nation’s social security landscape.

The government’s consideration to increase the wage ceiling for mandatory inclusion under ESIC reflects growing recognition that existing thresholds have become outdated in light of inflation, rising minimum wages, and changing economic realities. This article examines the proposed changes, the legal framework governing ESIC, landmark judicial interpretations, and the broader implications for India’s workforce.

Historical Context and Legislative Framework

Origins of the ESI Act

The Employees’ State Insurance Act, 1948, was enacted on April 19, 1948, with the primary objective of providing certain benefits to employees in case of sickness, maternity, and employment injury. The Act represented India’s first major attempt at creating a comprehensive social security system for industrial workers. The scheme was first implemented in Kanpur and Delhi on February 24, 1952, under the leadership of Prime Minister Jawaharlal Nehru [1].

The legislative intent behind the Act was clearly articulated in its preamble, which states that it is expedient to provide benefits to employees in case of sickness, maternity, and employment injury. The Act aimed to create an integrated need-based social insurance scheme protecting workers’ interests in contingencies such as sickness, maternity, temporary or permanent physical disablement, and death due to employment injury resulting in loss of wages or earning capacity.

Constitutional Underpinnings

The ESI Act seeks to achieve the goal of socio-economic justice enshrined in the Directive Principles of State Policy under Part IV of the Constitution of India. This alignment with constitutional principles underscores the Act’s significance in fulfilling the state’s obligation to secure social and economic justice for all citizens, particularly the working class.

Current Wage Ceiling and Proosed Changes in ESIC Wage Ceiling

Existing Wage Thresholds

Currently, the wage ceiling for ESIC stands at Rs. 21,000 per month, last revised in 2016 when it was increased from Rs. 15,000 [2]. For persons with disabilities, a higher wage ceiling of Rs. 25,000 per month applies. This ceiling determines the salary threshold up to which ESI contributions are mandatory under law. Any employee earning wages up to this limit in establishments with ten or more employees falls under the compulsory coverage of ESIC.

The contribution structure requires employees to contribute 0.75% of their wages, while employers contribute 3.25% of wages paid to employees. These contributions fund the comprehensive range of benefits provided under the scheme, including medical care, cash benefits during sickness, maternity benefits, and compensation for employment injuries.

Proposed Wage Ceiling Revision

Recent reports suggest that the government is considering raising the ESIC wage ceiling, as well as the EPF limit, to bring them at par, with proposed limits ranging from Rs. 25,000 to Rs. 30,000 per month [3]. A final decision on the proposed increase in the ESIC wage ceiling is expected by early 2025. This proposed hike would represent the first significant revision to the ESIC wage ceiling in nearly a decade.

The rationale behind the ESIC wage ceiling increase is multifaceted. First, the current minimum wage for Central Government employees is Rs. 18,000, meaning the existing ESIC wage ceiling of Rs. 21,000 sits only slightly above minimum wage levels in many sectors. Second, inflation and the rising cost of living have eroded the real value of the ceiling, making an increase necessary. Third, many workers earning between Rs. 21,000 and Rs. 30,000 currently fall outside the social security net a gap that the proposed ESIC wage ceiling increase aims to address.

Expected Impact on Coverage

Experts estimate that the proposed wage ceiling increase could bring approximately 10 million additional employees under the ambit of the ESI Act [4]. This expansion would significantly enhance India’s social security coverage, particularly benefiting workers in the organized sector who currently earn just above the existing threshold. The move would also benefit over 37 million existing insured persons by ensuring continuity of coverage as their wages increase over time, making the ESIC wage ceiling increase a transformative step toward universal social security.

Regulatory Framework Under the ESI Act, 1948

Applicability and Coverage

The ESI Act applies to all factories employing ten or more persons, excluding seasonal factories. The definition of “factory” under Section 2(12) of the Act means any premises where ten or more persons are employed and where a manufacturing process is being carried on. The Act also extends to establishments that the appropriate government may notify, provided they employ ten or more persons.

Section 2(9) of the Act defines an “employee” comprehensively to include any person employed for wages in or in connection with the work of a factory or establishment. This includes persons directly employed by the principal employer, those employed through immediate employers, and those whose services are temporarily lent on hire. The definition specifically excludes members of the armed forces and persons whose wages exceed the prescribed wage ceiling.

Principal Employer’s Obligations

Section 40 of the Act places the primary responsibility for paying contributions on the principal employer. The principal employer must pay both the employer’s contribution and the employee’s contribution in respect of every employee, whether directly employed or employed through an immediate employer. The Act permits the principal employer to recover the employee’s contribution through deduction from wages, but importantly, Section 40(3) prohibits the principal employer from deducting or recovering the employer’s contribution from employees.

The Act mandates that any sum deducted by the principal employer from wages under the Act shall be deemed to have been entrusted to him by the employee for paying the contribution. This legal fiction creates a trust relationship and forms the basis for criminal liability in cases of non-payment despite deduction.

Benefits Under the ESI Act

Section 46 of the Act enumerates six primary benefits available to insured persons and their dependents. These include sickness benefit, which provides periodical payments to insured persons during certified sickness; maternity benefit for insured women covering confinement, miscarriage, or pregnancy-related sickness; disablement benefit for temporary or permanent disablement resulting from employment injury; dependants’ benefit as periodical payments to dependants of deceased insured persons; medical benefit covering treatment and attendance; and funeral expenses to cover costs related to the death of an insured person.

The Act takes a progressive approach by extending medical benefits to the families of insured persons at the request of the appropriate government. This family coverage significantly enhances the social security value of the scheme, protecting not just workers but their dependents from health-related financial stress.

Contribution Mechanism

Section 39 establishes the contribution framework, specifying that contributions shall comprise both employer and employee shares. The rates of contribution are prescribed by the Central Government through rules. Currently, as per the Employees’ State Insurance (Central) Rules, the employer contributes 3.25% while the employee contributes 0.75% of wages.

Section 42 provides relief for low-wage workers by exempting employees whose average daily wages fall below a prescribed threshold from paying the employee’s contribution. However, the employer’s contribution remains payable even for such exempt employees. This provision ensures that the poorest workers receive full ESI benefits without bearing the contribution burden.

Enforcement and Recovery

The Act contains robust enforcement mechanisms. Section 45 empowers the Corporation to appoint Social Security Officers who can inspect establishments, examine records, and require employers to furnish information. Section 45-A grants the Corporation authority to determine contributions where returns are not submitted or officers are obstructed, creating a presumptive basis for recovery.

Recovery of contributions can be effected through multiple mechanisms. Section 45-B allows recovery as arrears of land revenue, while Sections 45-C to 45-I provide detailed procedures for certificate-based recovery through Recovery Officers, including attachment and sale of property, arrest and detention of employers, and appointment of receivers.

The Code on Social Security, 2020

Consolidation and Modernization

The Code on Social Security, 2020, represents a landmark reform consolidating nine existing labour laws, including the ESI Act, 1948 [5]. The Code was notified and implemented on November 21, 2025, marking a new era in India’s labour and social security framework. This consolidation aims to simplify compliance, enhance enforcement efficiency, and extend social security coverage to previously uncovered categories of workers.

The Code maintains the core structure of ESIC while introducing several progressive changes. It extends ESIC coverage to all establishments with ten or more employees on a nationwide basis, eliminating the earlier restriction to notified areas. This geographic expansion ensures that workers in all parts of India can access ESI benefits, removing the urban-rural divide that characterized the earlier regime.

Coverage of Gig and Platform Workers

One of the most significant innovations in the Code is the recognition of gig and platform workers as a distinct category deserving social security protection. Section 114 of the Code empowers the Central Government to frame schemes for providing social security benefits to unorganized workers, gig workers, and platform workers [6]. These schemes may cover life insurance, disability insurance, health benefits, maternity benefits, old age protection, and any other benefit as determined by the government.

The Code establishes a Social Security Fund for unorganized, gig, and platform workers, funded by contributions from the Central Government, State Governments, and aggregators. Aggregators are required to contribute between 1% and 2% of their annual turnover to this fund. This provision acknowledges the changing nature of work in the digital economy and ensures that workers in the gig economy are not left outside the social security net.

Enhanced Women-Centric Provisions

The Code significantly strengthens provisions related to women workers. It mandates 26 weeks of paid maternity leave, up from the 12 weeks provided under the earlier Maternity Benefit Act. The Code also provides 12 weeks of maternity benefit for adoptive and commissioning mothers, recognizing diverse family formations. Additionally, establishments with 50 or more employees must provide crèche facilities, ensuring that working mothers can balance professional and family responsibilities.

Commuting Accidents as Employment Injuries

Section 51-E of the Code, as incorporated into the ESI framework, introduces a groundbreaking provision treating commuting accidents as employment injuries. The section states that an accident occurring to an employee while commuting from residence to workplace for duty, or from workplace to residence after performing duty, shall be deemed to have arisen out of and in the course of employment if the nexus between the circumstances, time, and place of the accident and the employment is established [7].

This provision addresses a long-standing gap in worker protection. Previously, the “going and coming rule” generally excluded commuting accidents from coverage unless the employee was in the course of employment during travel. The new provision recognizes that commuting is an integral part of modern employment and that workers deserve protection during this vulnerable period.

Simplified Compliance and Penalty Structure

The Code introduces several compliance-friendly measures. It provides a 30-day improvement notice to employers before initiating prosecution for violations, allowing them an opportunity to rectify non-compliance. The Code also establishes a five-year limitation period for ESIC inquiries related to contributions, providing certainty to employers. Additionally, many offenses have been decriminalized, with imprisonment replaced by monetary fines for 13 offenses, reflecting a more calibrated approach to enforcement.

Landmark Judicial Pronouncements

ESIC vs. Sameer Gupta (2023)

In the case of Employees State Insurance Corporation versus Sameer Gupta, the Chief Judicial Magistrate of Chandigarh delivered a significant verdict on October 4, 2023, sentencing Sameer Gupta to three months of simple imprisonment and imposing fines for non-compliance with ESI Act requirements [8]. The case involved systematic failure to maintain and produce statutory records during multiple inspections conducted in 2017.

The court’s decision emphasized that the burden of maintaining proper records and ensuring compliance lies squarely with the principal employer. The judgment reinforced that claims of business closure without documentary evidence cannot be accepted as defense against statutory obligations. This case serves as an important precedent demonstrating the judiciary’s firm stance on enforcing compliance with labour laws and the serious consequences of persistent non-compliance.

Ajay Raj Shetty vs. Director and Ors. (2025)

The Supreme Court of India in Criminal Appeal No. 2036 of 2025 addressed crucial questions regarding personal liability under the ESI Act. The case involved Ajay Raj Shetty, who was identified as the general manager and principal employer of a company where employees’ ESI contributions were deducted but not deposited with ESIC between February and December 2010 [9].

The Supreme Court held that a person need not hold a formal title to be deemed a principal employer under Section 2(17) of the Act. The determining factor is whether the individual was effectively responsible for the supervision and control of the establishment. The Court emphasized that functional responsibility, rather than mere designation, determines liability under the Act. This judgment clarifies that managerial personnel cannot escape liability by claiming they were not formally designated as principal employers if they exercised effective control over establishment operations.

C.E.S.C. Ltd. vs. Subhash Chandra Bose (1991)

In this landmark case, the Supreme Court examined whether employees paid through contractors fall within the definition of “employee” under Section 2(9) of the ESI Act. The Court held that workers employed through contractors on the premises of the principal employer and performing work that is ordinarily part of the principal employer’s business are employees within the meaning of the Act. This interpretation ensured that principal employers cannot evade ESI obligations by engaging workers through intermediaries.

The judgment established the principle of looking beyond formal employment arrangements to the substance of the working relationship. It recognized that contract labour is often used to circumvent labour law obligations and held that the ESI Act’s protective provisions must be interpreted liberally to effectuate the legislative intent of providing social security to all workers.

E.S.I. Corporation vs. Endocrinology and Immunology Lab (2023)

The Supreme Court in this case determined that pathological laboratories in Kerala were covered under the ESI Act from 2007 and not from 2002 as claimed by ESIC. The judgment illustrates the importance of proper notification procedures for extending the Act’s coverage to new categories of establishments. The Court emphasized that coverage under the Act must be based on clear legal notification and cannot be retrospectively applied without proper authority.

Regulatory Compliance and Employer Obligations

Registration Requirements

Section 2-A of the ESI Act mandates that every factory or establishment to which the Act applies must be registered within the time and manner specified in regulations. Registration is the first step in bringing an establishment under the ESIC framework and triggers all subsequent obligations regarding contributions, returns, and record-keeping.

Employers must register on the ESIC online portal by providing details about their business, employees, and wage structure. Upon registration, the establishment receives a unique code number that must be used in all future correspondence with ESIC. The registration creates a legal relationship between the employer, employees, and ESIC, establishing mutual rights and obligations.

Return Submission and Record Maintenance

Section 44 of the Act requires every principal and immediate employer to submit returns in prescribed forms containing particulars relating to persons employed. These returns must be submitted periodically, typically monthly, showing details of all employees, their wages, and contributions deducted and paid. Additionally, employers must maintain registers and records as specified in regulations.

The importance of accurate record-keeping cannot be overstated. Records serve multiple purposes including verification of contributions paid, determination of benefit eligibility, calculation of benefit amounts, and audit trails for compliance verification. Failure to maintain proper records can result in determination of contributions on a presumptive basis under Section 45-A, often resulting in higher liability than actual.

Payment of Contributions

Contributions must be paid within 15 days from the end of the month in which they fall due. Payment is made through designated bank branches authorized to receive ESI contributions. Employers who fail to pay contributions on time become liable for interest at 12% per annum or at higher rates specified in regulations under Section 39(5). This interest provision serves as both a deterrent against delayed payment and compensation to ESIC for loss of use of funds.

Section 40(4) creates a trust relationship by deeming any sum deducted from employee wages as entrusted to the employer for paying contributions. This legal construct has significant implications because misappropriation of such amounts can attract criminal liability under Section 406 of the Indian Penal Code for criminal breach of trust, in addition to penalties under the ESI Act itself.

Benefits for Workers and Challenges

Medical Infrastructure

ESIC operates an extensive network of hospitals, dispensaries, and medical facilities across India. As of recent data, the Corporation runs seven ESIC Medical College and Post Graduate Institutes of Medical Sciences and Research in Bangalore, Chennai, Kolkata, Faridabad, Hyderabad, Gulbarga, and Jaipur. Additionally, an ESIC Medical College and Hospital operates in Patna. These institutions provide both medical education and treatment services.

However, the medical infrastructure faces challenges. The Parliamentary Standing Committee on Labour noted that ESIC has approximately 14,000 staff vacancies across its medical facilities. In areas where ESIC does not have its own medical infrastructure, the Corporation enrolls Insurance Medical Practitioners who provide care to insured persons and their families. Currently, 1,003 private medical practitioners serve as IMPs, each permitted to register up to 2,000 insured person family units.

Cash Benefits During Sickness

Insured persons who fall sick and obtain a medical certificate are entitled to sickness benefit at rates prescribed by the Central Government. The benefit compensates for wage loss during illness, typically providing 70% of wages subject to certain conditions and limitations. To qualify, an insured person must have contributed for a minimum period and must be certified as sick by an authorized medical practitioner.

Sickness benefit serves as crucial income protection, preventing workers from falling into financial hardship during periods of illness. The benefit recognizes that health emergencies should not push families into poverty and that workers deserve support during periods when they cannot work due to illness.

Maternity Benefits

The ESI Act provides comprehensive maternity benefits to insured women. Under current provisions, pregnant women are entitled to periodical payments for 26 weeks, which can be divided before and after confinement as per regulations. The benefit also covers miscarriage and pregnancy-related sickness. Women who have contributed for a specified minimum period and satisfy other conditions are eligible for these benefits.

Maternity benefit serves multiple objectives including ensuring adequate rest before and after childbirth, preventing premature return to work that could harm maternal or child health, and providing financial security during a period when women cannot work. The extension of maternity leave to 26 weeks under the Code on Social Security represents progressive legislation that aligns India with international best practices.

Disablement and Dependent Benefits

Workers who suffer employment injuries resulting in temporary or permanent disablement are entitled to disablement benefits. Temporary disablement benefit provides periodical payments for the duration of disablement lasting more than three days. Permanent disablement benefit, whether total or partial, provides compensation based on the degree of earning capacity loss as assessed by Medical Boards.

In tragic cases where an employment injury results in death, dependents of the deceased worker are entitled to dependants’ benefit. The Act defines dependants in Section 2(6-A) to include the widow, legitimate or adopted children below 25 years, unmarried daughters, widowed mothers, and other specified relatives who were wholly or partially dependent on the deceased worker’s earnings.

Conclusion

The proposed increase in the ESIC wage ceiling marks a major move toward building universal social security coverage in India. Raising the limit to ₹25,000 or ₹30,000 a month could bring nearly 10 million more workers into the ESIC safety net. This update reflects current economic conditions especially inflation and rising minimum wages which have made the existing ₹21,000 threshold outdated and insufficient.

The ESI Act, 1948, has served as the cornerstone of India’s social security architecture for over seven decades. Its framework of compulsory insurance funded by employer and employee contributions has provided medical care and income security to millions of workers and their families. The Act’s evolution through judicial interpretation and legislative amendment demonstrates its adaptability to changing economic and social conditions.

The Code on Social Security, 2020, marks a new chapter by consolidating and modernizing social security laws. Its provisions extending coverage to gig workers, recognizing commuting accidents as employment injuries, and strengthening women-centric benefits reflect progressive policy thinking aligned with contemporary workplace realities. The Code’s emphasis on simplified compliance and digitization promises to reduce the burden on employers while improving benefit delivery to workers.

However, challenges remain. ESIC’s medical infrastructure requires substantial strengthening with thousands of vacant positions needing to be filled. The quality of medical services must improve to make the scheme more attractive to higher-wage workers who may opt out. The expansion of coverage must be accompanied by enhanced administrative capacity to handle increased volumes while maintaining service quality.

As India aspires to become a developed nation by 2047, ensuring comprehensive social security for all workers becomes not just a moral imperative but an economic necessity. Healthy, secure workers are more productive and contribute more effectively to economic growth. The proposed ESIC wage ceiling Increase, combined with the progressive provisions of the Code on Social Security, positions India to move closer to the goal of universal social security coverage that leaves no worker behind.

References

[1] Official Website of ESIC. About Us – Employees’ State Insurance Act, 1948: India’s Turning Point in Worker Welfare. Available at: https://esic.gov.in/about-us 

[2] TeamLease Services. (2016). ESIC raises wage threshold to Rs.21,000, aims to add 50 lakh workers. Available at: https://group.teamlease.com/esic-raises-wage-threshold-to-rs-21000-aims-to-add-50-lakh-workers/ 

[3] Business Today. (2024). Centre considers increasing monthly wage ceiling for EPFO and ESIC to Rs 25,000. Available at: https://www.businesstoday.in/personal-finance/news/story/centre-considers-increasing-monthly-wage-ceiling-for-epfo-and-esic-to-rs-25000-436789-2024-07-11 

[4] People Manager. (2024). India Set for Major Hike in EPS, EPF and ESIC Wage Ceilings. Available at: https://peoplemanager.co.in/india-set-for-major-hike-in-eps-epf-and-esic-wage-ceilings/ 

[5] Press Information Bureau, Government of India. Code on Social Security, 2020: Towards Universal and Inclusive Social Protection. Available at: https://www.pib.gov.in/FactsheetDetails.aspx?id=150473 

[6] Lakshmikumaran & Sridharan Attorneys. Code on Social Security, 2020 – An overview. Available at: https://www.lakshmisri.com/insights/articles/code-on-social-security-2020-an-overview/ 

[7] Static PIB Document. Code on Social Security, 2020. Available at: https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/nov/doc20251122702601.pdf 

[8] Prakash Consultancy Services. (2024). Understanding the ESIC vs. Sameer Gupta Case – A Landmark Judgment. Available at: https://blog.pcsmgmt.com/2024/06/understanding-the-esic-vs-sameer-gupta-case-a-landmark-judgment.html 

[9] Lexology. (2025). Liability by functional responsibility: Supreme Court affirms conviction under ESI act. Available at: https://www.lexology.com/library/detail.aspx?g=2c39f445-7657-40ce-9f9b-0ca7658c7866