[Analysis] ESI Act under Code on Social Security 2020 – Coverage | Contribution | Benefits

ESI under the Code on Social Security 2020 is the employees' State insurance scheme now governed by Chapter IV of the Code, which replaced the Employees' State Insurance Act, 1948. It applies to every establishment employing ten or more persons, other than a seasonal factory. Section 32 confers six benefits on insured persons: sickness, maternity, disablement, dependants', medical and funeral expenses. Rates and qualifying conditions are prescribed by Rule 22 of the Social Security (Central) Rules, 2026.

Law stated as on 20 July 2026. The Code on Social Security, 2020 was brought into force in stages, the bulk of it with effect from 21 November 2025.

Table of Contents

1. What is the ESI Act, and what replaced it
2. Which establishments are covered
3. All employees to be insured
4. Contributions and who pays them
5. The six benefits under Section 32
6. Qualifying conditions and rates under Rule 22
7. Employment injury, presumptions and occupational disease
8. Where the employer fails to register
9. Employees’ Insurance Courts and appeals
10. Frequently asked questions
11. Conclusion

1. What is the ESI Act, and what replaced it

The Employees’ State Insurance Act, 1948 no longer operates as a standalone statute. It is one of the nine welfare enactments subsumed by the Code on Social Security, 2020, and its provisions now sit in Chapter IV of the Code, running from section 24 to section 52.

The substance has largely carried over. Section 32 of the Code corresponds to sections 46, 49, 50, 51 and 97 of the 1948 Act, and the six benefits it confers are worded almost identically to the old section 46. What has changed is the machinery around them — the rules, the forms, the assessment provisions and the appellate route are now common to all the welfare chapters of the Code rather than specific to ESI.

That matters more than it sounds. An employer facing an ESI determination today is dealing with section 125 of the Code, not section 45A of the 1948 Act, and the limitation and enquiry timelines that go with it are new.

2. Which establishments are covered

Coverage is set by the First Schedule to the Code. Chapter IV applies to every establishment in which ten or more persons are employed, other than a seasonal factory.

Three refinements sit alongside that threshold. Where the Central Government notifies a hazardous or life-threatening occupation, the Chapter applies even where a single employee is engaged. A plantation employer may opt into Chapter IV by giving his willingness to the Corporation, but only where the benefits under that Chapter are better than those he already provides. And the third proviso defers the liability itself: contributions become payable under section 29 only on and from the date the Corporation actually provides Chapter IV benefits to the employees of the establishment, that date being notified by the Central Government. Notifications S.O. 1648(E), S.O. 1649(E) and S.O. 1650(E), all dated 30 March 2026, fixed 1 April 2026 for named districts of Manipur, Meghalaya and Mizoram.

3. All employees to be insured

Section 28 states the basic obligation: every employee in an establishment to which Chapter IV applies shall be insured. The obligation attaches to the establishment, not to any negotiation between employer and employee, and it is not displaced by a contrary term in a contract of service.

The Code drops the 1948 Act’s pairing of “principal employer” and “immediate employer”. Section 2(27) defines a single “employer”, which expressly includes a contractor, and section 2(20) defines “contractor” separately. Where work is done through a contractor, the employees engaged by or through that contractor are within the net, and section 31(1) puts the obligation to pay on the employer.

4. Contributions and who pays them

Section 29 provides for contributions payable in respect of an employee, comprising the employer’s contribution and the employee’s contribution, at rates prescribed by the Central Government. Rule 19(1) of the Social Security (Central) Rules, 2026 fixes those rates: the employer’s contribution at three and one-fourth per cent (3.25%) of the wages payable to an employee, and the employee’s at three-fourth per cent (0.75%), each rounded to the next higher rupee. Rule 19(2) relieves the employer of his share for three years in respect of an employee who is a person with disability, the Central Government reimbursing the Corporation instead. Section 31 then allocates responsibility for actually paying them.

The scheme of section 31 is worth setting out plainly, because it is where most contractor disputes begin:

Provision	What it does
Section 31(1)	The employer pays both the employer’s and the employee’s contribution, including for employees employed by or through a contractor
Section 31(6)	The employer may recover the contribution so paid from the contractor, by deduction from any amount payable under the contract, or as a debt
Section 31(7)	The contractor must maintain a register of employees and submit it to the employer before settlement of any amount under section 31(6)
Section 31(8)	The contractor may recover the employee’s share by deduction from wages, and not otherwise

The words “and not otherwise” in section 31(8) do real work. A contractor cannot recover an employee’s contribution by any route other than deduction from that employee’s wages, and cannot deduct more than the employee’s own share.

5. The six benefits under Section 32

Section 32(1) confers six benefits on insured persons, their dependants, or the persons mentioned in the section:

• Sickness benefit: periodical payments during certified sickness
• Maternity benefit: periodical payments to an insured woman on confinement, miscarriage, sickness arising out of pregnancy, confinement, premature birth or miscarriage
• Disablement benefit: periodical payments where disablement results from an employment injury
• Dependants’ benefit: periodical payments to dependants where the insured person dies of an employment injury
• Medical benefit: medical treatment for and attendance on insured persons
• Funeral expenses: paid to the eldest surviving member of the family or, where the insured person had no family or was not living with his family at the time of death, to the person who actually incurs the expenditure

A claim for funeral expenses must be made within three months of the death of the insured person, or within such extended period as the Corporation or an authorised officer may allow.[1] The limitation is easy to miss and there is no automatic extension.

Section 32(2) allows the Corporation to extend medical benefits to the family of an insured person, subject to conditions laid down in the regulations.

Section 41 then caps what may be drawn. Section 41(4) bars an insured person from receiving, for the same period, both sickness and maternity benefit, both sickness and temporary disablement benefit, or both maternity and temporary disablement benefit; section 41(5) leaves the choice to him. Section 41(7) closes the cross-chapter route: a person eligible for dependants’ or disablement benefit under Chapter IV cannot claim employee’s compensation from his employer under Chapter VII, and an insured woman eligible for maternity benefit under Chapter IV cannot claim it from her employer under Chapter VI.

6. Qualifying conditions and rates under Rule 22

Section 32(3) leaves the qualification, rate and period of sickness, maternity, disablement and dependants’ benefit to be prescribed, and Rule 22 of the Social Security (Central) Rules, 2026 now does that work. Funeral expenses are handled separately: the proviso to section 32(1)(f) caps the payment at the prescribed amount, which Rule 21 fixes at ₹20,000. The headline positions:

Benefit	Qualifying condition	Rate and period
Sickness benefit	Contributions payable for not less than 78 days in the corresponding contribution period	70% of the Standard Benefit Rate; not more than 91 days in any two consecutive benefit periods
Extended sickness benefit	Four contribution periods immediately preceding, and contribution for 156 days	80% of the Standard Benefit Rate; maximum 730 days
Maternity benefit	Contributions payable for not less than 70 days in the immediately preceding two consecutive contribution periods	26 weeks, of which not more than 8 weeks may precede the expected date of confinement
Maternity: commissioning or adopting mother	As above	12 weeks from the date the child is handed over
Maternity: two or more surviving children	As above	12 weeks, of which not more than 6 may precede the expected date
Miscarriage or medical termination	As above	6 weeks immediately following the date
Medical bonus	Confinement at a place where ESI medical facilities are unavailable	₹15,000 per case; two confinements only
Temporary disablement	Disablement of not less than three days, excluding the day of accident	90% of the Standard Benefit Rate (the “full rate”)

Dependants’ benefit is distributed under Rule 22(6) of the Social Security (Central) Rules, 2026 in fixed fractions of the full rate: three-fifths to the widow during life until remarriage, two-fifths to each legitimate or adopted son until he attains twenty-five, two-fifths to each unmarried daughter, and two-fifths to a widowed mother. Where the aggregate exceeds the full rate, each share is reduced proportionately.

7. Employment injury, presumptions and occupational disease

Chapter IV carries three provisions that decide most contested disablement claims.

Section 34 creates a presumption that an accident arising in the course of employment arose out of that employment, in the absence of evidence to the contrary. The presumption is what shifts the evidentiary burden onto the employer.

Section 35 deals with accidents happening while the employee is acting in breach of law or of the employer’s instructions. The accident may still be treated as arising out of and in the course of employment in the circumstances the section specifies.

Section 36 governs occupational disease. The Third Schedule lists the notified diseases in three parts, and contracting a listed disease in the corresponding employment is treated as an employment injury.

Where the extent of disablement is disputed, section 37 routes the question to a medical board. Section 37(7)(a) then gives the insured person or the Corporation a choice: appeal to the medical appeal tribunal, or go directly to the Employees’ Insurance Court. Only where the tribunal is chosen does a second appeal lie, under section 37(7)(b), to the Employees’ Insurance Court.

8. Where the employer fails to register

Section 42 preserves the Corporation’s rights where an employer fails to register the establishment or fails to pay contributions. The benefit is not denied to the employee due to the employer’s default; the Corporation may pay the benefit and then recover the capitalised value of it from the employer, after giving him an opportunity of being heard.

Section 43 goes further, imposing liability on the owner or occupier of a factory for excessive sickness benefit where the sickness is attributable to insanitary conditions or a failure to comply with health obligations.

Section 47 gives contributions due to the Corporation priority over other debts, a provision that surfaces in insolvency and winding-up.

9. Employees’ Insurance Courts and appeals

The adjudicatory structure is unchanged in outline. Section 48 provides for the constitution of Employees’ Insurance Courts. Section 49 lists the matters they decide: whether a person is an employee, the rate of contribution, entitlement to a benefit, and the like. Section 50 confers the powers, section 51 governs the proceedings, and section 52 provides an appeal to the High Court on a substantial question of law.

One point remains genuinely unsettled. The Code was enforced from 21 November 2025, but a large body of proceedings begun under the 1948 Act is still part-heard. Section 164 saves what has been done under the repealed Acts, and section 6 of the General Clauses Act, 1897 supplies the default position. The Code addresses part of the problem: the third proviso to section 125(2) requires inquiries pending immediately before commencement to be concluded within a period not exceeding two years from that date. How that sits with the five-year bar in the proviso to section 125(1), where the cause of action arose under the 1948 Act, has not been tested. Taxmann’s Law & Practice Relating to Code on Social Security sets out the savings scheme under section 164 and collects the authorities on determination of dues up to the Supreme Court decision reported as Carborandum Universal Ltd. v. ESI Corporation, 2026 (188) FLR 201 (SC) : [2025] 181 taxmann.com 683 (SC).

10. Frequently asked questions

What is the ESI Act?

The Employees’ State Insurance Act, 1948, also called the ESI Act, 1948, was the statute governing employees’ State insurance in India. It has been repealed and subsumed into the Code on Social Security, 2020, where the corresponding provisions now appear in Chapter IV, sections 24 to 52. References to “the ESI Act” today are, in substance, references to that Chapter.

What is the ESI rule for salary?

Chapter IV applies to establishments employing ten or more persons other than a seasonal factory. Whether a particular employee is covered turns on the wage ceiling notified by the Central Government, and on the definition of “wages” in section 2(88) of the Code, which is not the same as gross salary and excludes specified heads.

Is ESIC not applicable above ₹21,000?

₹21,000 was the ceiling under rule 50 of the Employees’ State Insurance (Central) Rules, 1950, and those Rules were superseded by the Social Security (Central) Rules, 2026 on 8 May 2026. Under the Code the ceiling is whatever the Central Government notifies under section 2(89), and the only such notification so far, S.O. 2702(E) dated 29 May 2026, fixes ₹15,000 for Chapter III alone. No Chapter IV ceiling has yet been notified. S.O. 2351(E) dated 8 May 2026 anticipates one, providing that an employee whose wages cross the ceiling after a contribution period has begun remains an employee for the rest of that period.

How long do I have to claim funeral expenses?

Three months from the date of death of the insured person, under the proviso to section 32(1)(f). The Corporation or an officer authorised by it may allow an extended period, but there is no automatic extension.

Who pays the contribution where a contractor is involved?

The employer pays both contributions under section 31(1), and may recover the amount from the contractor under section 31(6). The contractor may recover the employee’s share only by deduction from that employee’s wages, under section 31(8).

11. Conclusion

Chapter IV of the Code reproduces most of the substance of the 1948 Act, which is why the older case law continues to matter. The practical difficulty is not the benefits, which are stable, but the machinery that has moved: assessment now runs through section 125, appeals through section 126, and recovery through sections 129 to 132, each with its own timeline. An employer who knows the 1948 Act well will find the entitlements familiar and the procedure unfamiliar.

For section-by-section treatment with the 1948 Act printed alongside the Code, see Taxmann’s Law & Practice Relating to Code on Social Security. For live notifications, rules and case law across all four labour codes, Taxmann.com | Research carries the full module, and Taxmann AI will answer a question against that database directly.

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[1] Proviso to section 32(1)(f), Code on Social Security, 2020.