Employees' State Insurance (ESI) vs Private Group Cover
Employees' State Insurance is a statutory social-security scheme; private group health insurance is a voluntary benefit bought from an insurer. This lesson compares who is covered, who pays, and what each provides.
ESI: a statutory scheme
Employees' State Insurance (ESI) is a social-security scheme created by law. It now sits under the Code on Social Security, 2020, in force from 21 November 2025, and is run by the Employees' State Insurance Corporation (ESIC). The Code extends ESIC coverage nationwide.
It covers employees in covered establishments who earn wages up to ₹21,000 a month. Employees earning more are generally not covered by ESI. The ceiling is a notified figure and can be revised.
Who pays, and what ESI gives
ESI is funded by contributions from both sides. The employer contributes 3.25% of wages and the employee 0.75%, which is 4% in all. These are the rates as of October 2026; they are set by notification and can change.
In return ESI provides two kinds of benefit. One is medical care. The other is cash benefits: sickness, maternity, disablement and dependants' benefit. The sickness benefit is paid in cash in place of part of the wages lost while the insured employee is unable to work. The rate and duration of each cash benefit are set by the scheme's rules.
Private group health cover
Private group health insurance is a different thing. It is a voluntary benefit that an employer buys from an insurer for its employees. No law requires it.
It is an indemnity cover: it pays hospitalisation expenses up to the sum insured stated in the policy. What it covers, and the limits that apply, depend on the policy wording. It does not ordinarily replace wages lost during illness.
The comparison in brief
ESI is compulsory within its wage ceiling, contributory, and combines medical care with wage-replacing cash benefits. Group health cover is optional, its premium is a matter between employer and insurer, and it pays treatment bills only. An employer with staff on both sides of the ₹21,000 line may therefore have some employees under ESI and may choose to buy group cover for others.
Rules at a glance
Illustration: the same illness under each
Ravi works in a covered factory at wages below the ceiling and is an insured person under ESI. He falls ill and cannot work for some weeks. ESI provides his medical care, and also pays him a cash sickness benefit in place of part of the wages he loses.
His cousin Anita earns above the ceiling at another company, which has bought a group hospitalisation policy. When she is admitted to hospital, the policy pays her admissible treatment expenses up to the sum insured. It pays nothing for the salary she may lose; whether she is paid during her absence depends on her employer's leave rules.
ESI contributions for one month (assumed wages)
- Assume an insured employee's wages for the month are ₹18,000, which is within the ₹21,000 ceiling.
- Employer's contribution: 3.25% × ₹18,000 = ₹585.
- Employee's contribution: 0.75% × ₹18,000 = ₹135.
- Total: ₹585 + ₹135 = ₹720, which is 4% × ₹18,000.
Result. ₹720 is contributed for the month: ₹585 by the employer and ₹135 by the employee.
Key points
- ESI is a statutory scheme under the Code on Social Security, 2020, run by ESIC.
- It covers employees in covered establishments earning wages up to ₹21,000 a month.
- Contributions: employer 3.25% and employee 0.75% of wages, 4% in all.
- ESI gives medical care and cash benefits: sickness, maternity, disablement and dependants' benefit.
- Private group health insurance is voluntary and pays hospitalisation expenses up to the sum insured.
- A group hospitalisation policy does not ordinarily replace lost wages; ESI's sickness benefit does so in part.
Common misunderstandings
- ESI is not an insurance policy the employer chooses to buy: it is a statutory scheme for employees within the wage ceiling.
- Group health insurance is not a legal requirement: it is a voluntary benefit.
- The 4% is not paid by the employer alone: 3.25% comes from the employer and 0.75% from the employee.
- A hospitalisation policy is not a substitute for ESI's cash benefits: it pays treatment expenses and does not ordinarily replace wages.
Questions people ask
Who runs ESI?
The Employees' State Insurance Corporation (ESIC).
Is an employee earning ₹30,000 a month covered by ESI?
Employees earning above the ₹21,000 ceiling are generally not covered by ESI.
How long is sickness benefit paid, and at what rate?
The rate and duration are set by the scheme's rules.
What this lesson relies on
- Code on Social Security, 2020 (Employees' State Insurance)
- ESI contribution rates and wage ceiling as notified (position as of October 2026)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.