ESI Contribution Dilemma: Should I Adjust Payments After a Salary Increase?

Hi, I'm Balaji. I just joined with you.

If an employee is contributing to ESI at his gross Rs. 9000 and his gross income increases to Rs. 11500, does he have to continue contributing until the end of the half-year or can he close the contribution?

If yes, on which amount does he have to contribute? For example, for April and May, his salary was 9000, and ESI was contributed on 9k. Now, his salary is 11500. Does he have to contribute based on 9k or 11k?

Please clarify, experts. Thanks, Balaji

Hi,

I am attaching the document. I hope this helps you. Please let me know if you need any assistance.

Regards,
Suman

Hi Balaji,

The ESI contribution needs to be deducted on 10,000/-, not on his 11,500/-. Also, you have to continue the contribution as per the ESI calendar, i.e., from April to September and October to March. You can stop the contribution after September 08.

Chitra

Dear all,

If any employee crosses the ESI limit during the contribution period by virtue of any arrears, increment, etc., then he/she will remain a member of ESI until that period of contribution, and the ESI contribution will be based on the increased wages and not on 10,000/- as mentioned by Chitra.

Hope this will clear your query.

Hello dear,

If the gross salary hikes up to 10000, then from that month, there is no need to deduct the ESI contribution. So please stop deducting the ESI contribution.

Regards,
Chirag Pancholi

If I am right, then you have to deduct from the revised salary even though the salary increased by more than $10,000 throughout the contribution period.

MRN

Dear Chirag,

You can stop deducting ESI contributions once the contribution period is over. For example, if an employee receives an increase in April, they will remain an ESI member until September, and ESI deductions must continue for that contribution period. The employee will be exempt from deductions starting from the next contribution period, i.e., from October onwards.

Dear all,

If the salary is raised during the contribution period, i.e., April to September and October to March, the ESI contribution should be continued for the raised salary only and not for the ceiling amount.

Regards,
Alphonse
09443625359

Hi everybody,

I have a small doubt regarding the calculation. As Mr. Balaji said, the employee is already a member of ESI. So, why can't the deductions be done even though his gross is up to 10,000 or more?

Kindly clarify the doubt for me as I am also in this process.

Regards,
Saritha

If the employee is already contributing to ESI at his gross of Rs. 9000, and his gross salary increases within a six-month period, we must deduct the ESI contributions until the end of the contribution period.

The amount he has to contribute now that his salary is Rs. 11500, so he has to contribute based on Rs. 11500 only, not on Rs. 9000.

Ramesh

If an employee received an increment in June 2008 from Rs 9500 to Rs 12000, but this increase was implemented retrospectively, with arrears for April and May 2008 being paid in June (effective from April 2008), the question arises whether the employer is required to provide coverage for the employee until the completion of the contribution period (i.e., October 2008) or if the employer can stop the coverage according to ESI rules.

Kindly clarify this matter, and if possible, provide any relevant case law.

Sathya

I have some doubt if an employee has not been coming for the last 2 months, on what basis will he be considered absconding or terminated? Also, please send me the content that I should include in his letter.

Thanks & Regards,
Vaibhav

Hi,

ESI will be deducted on 10,000, and if we are paying arrears, ESI will be deducted on the differential amount.
For example: Current Salary is Rs. 9,000, and Revised Salary is Rs. 11,000.
ESI will be deducted on 11,000 - 9,000 = 2,000.

Amit

Hi,

In case the employee's gross has exceeded the ESI limit, there shall not be any deduction for ESI. As per government laws, the ESI maximum limit is ₹10,000. Therefore, if an employee's gross income has exceeded this amount, their name can be removed from ESI. To do this, an application can be submitted to the ESI organization to request the removal of the employee's name.

Thanks and regards,
Manisha

Dear Friends,

We need to deduct until that period, i.e., the ongoing half-year is completed.

Regards,
Amith R.

Not like that. We have to stop deducting the ESI from the month he has crossed the slab of 10,000/-.

Hi, Mr. Rajeev Verma has provided the correct way of deducting the ESI contribution. Also, the contribution will continue for that contribution period (until September 08). However, his benefit period will continue until March 2009.

Thank you.

Dear Rajeev,

Thank you for the information. I have a small query - if an employee wants to continue the ESI contribution even after the salary hike to Rs. 11,000 and wishes to extend the ESI services to his family due to their needs, is it possible?

Thanks and Regards,
Sujatha

Dear All
As per Employees' State Insurance (Central) Rules, 1950, Section 50 - The wage limit for coverage of an employee under sub-clause (b) of clause (9) of section 2 of the Act shall be Ten Thousand rupees a month :

Provided that an employee whose wages (excluding remuneration for overtime work) exceed Ten thousand rupees a month at any time after and not before the beginning of the contribution period, shall continue to be an employee until the end of that period.
Also in reply to Sujathas query - the wage limit for coverage as per the rules has exceeded and if the contribution period has also ended, the employee will not be a covered employee
Regards
Arun

Dear Chirag,

Rajeev is correct. The ESI deduction should be made until the end of the contribution period even if the individual crosses the ESI ceiling in between the contribution period.

Regards,
Hariharan N

Hi,

I recently joined Medplus in Bangalore. The Head office is located in Hyderabad only. Currently, we are processing PF challans in Hyderabad for employees in Karnataka. I have a doubt - do I need to have a separate PF code for them, or can we continue to pay in Hyderabad only? Is it necessary to obtain a separate code?

Rafiq

You are not correct, Ms. Manisha. There is no provision in the ESI Act/Scheme (there is no other law governing the ESI Scheme than the ESI Act and the scheme framed thereunder) with respect to the exemption of an employee after his/her salary increases over the coverage ceiling. I have been practicing ESI/EPF Law and labor laws as a Consultant for the last 13 years, and I have necessary proof to support my claim. If you need clarification, please ask, but do not misguide anyone.

Hi Balaji,

His salary is 9000/month. He is in coverage of ESI, but when his salary is hiked to more than 10000, he is out of coverage of ESI. So, his ESI will not be deducted.

With regards,
Anil Kumar
Executive HRA

Dear all, I saw all your replies. Somebody is half off correct. The correct answer is if the employee crosses 10,000, i.e., 10,001, there is no need to deduct the ESI contribution. However, if they cross that limit between the return periods, i.e., April-September and October-March, we must consider the case where the limit is crossed in June. In this scenario, we will deduct the contribution up to September. This deduction must be based on the total gross, i.e., 11,500. After September, we can stop the deduction. So, deduct the contribution based on 11,500 (total gross). Okay, have a nice day. Bye. Catch me on 9346526033.

Hi, if the ESIC once paid in the contribution period, suppose in the month of April on Rs. 9600 and his salary increases to Rs. 11500 in the month of May, then we are required to pay on the whole sum (i.e., Rs. 11,500) till the continuation of the contribution period (till September).

Hi,

If the salary is raised during the contribution period from April to September and October to March, the ESI contribution should continue for the rest of the months based on the total increased gross amount, not on the ceiling amount. This is because the benefits of this contribution period apply for the next six months.

Dear,

ESI at 1.75% is to be deducted from employees' gross salary (increase), and employers also have to contribute 4.75% on the same gross salary.

Samarth Associates
ESI, PF, & Labour Law Management Consultant.
:p

Hi all,

No need to deduct ESI if the salary is more than or equal to $10,100.

Regards,
Vennila

Dear Balaji,

We faced this problem in our company a year ago. We have to keep paying until September if you have already paid for April. However, the amount to be considered for deduction is debatable. As a precaution, we paid the revised amount, not limited to Rs. 10,000/-. The difference for 8 of such employees was around Rs. 2,500/- only. Therefore, if the number of employees is less, you can go ahead and pay up for the revised amount to avoid delay. If the number is huge, wait until I get a legal opinion on this. :p

Warm Regards,
Sandeep Powar

Hi Minkoo, thanks for correcting me. I have read an article on ESI and its deductions, which is why I wrote that. I would be happy if you could provide me with some more information in this area. Thanks and regards, Vamn

Rajeev is correct. ESIC deduction will be on the increased gross up to the end of September or March of the relevant half-year end.

Kashi

Hi,

As suggested by other friends, for salaries exceeding Rs. 10,000, there will be no ESI deduction.

Goodbye,
Katyayani

Friends,

Regarding the question of Mr. Balaji, I find some answers wrong and some correct. Let me explain the legal position.

"Employee" for the purpose of compliance under the ESI Act is one whose wage is $10,000 or below that, provided that if the wage goes beyond this threshold during a particular Contribution period (April to September and October to March), he will continue to be an Employee during that particular contribution period, and not thereafter - Provision to Sec 2 (9) (b) of the ESI Act.

Contribution needs to be paid on the Wage as defined in Sec 2 (22). There is no limit provided in the definition.

Hence, the contribution needs to be paid on the actual wage paid or payable during the currency of the Contribution period, not merely for Rs 10,000, if the Employee was drawing Rs 10,000 or below at the commencement of the Contribution period, that is April or October. You cannot restrict to 4.75%/1.75% of Rs 10,000.

A good HR manager should ensure that wage increases/increments, etc., start from April or October, in the case of those whose wage is below $10,000 per month, to avoid this.

O. Abdul Hameed Formerly Additional Commissioner ESI Corporation.

ESI will be calculated on the current gross till the contribution period ends. After that, the employee will be excluded.

Hi Suman,

For your information, you were added to this sheet to only mention the contribution period for employees whose salary is below 10000. However, as per your information, if the gross salary increases in the middle of the contribution period, the total contribution amount will also automatically increase by the end of the contribution period.

Hi all,

The ESI contribution will be calculated on the gross wages, whether it is ₹11,500 or ₹115,000, and will continue until September or April of the corresponding year.

Regards,
Jenender Chawla
9711304112

Dear Friend,

If the employee salary exceeds more than Rs. 10,000 per month, the employee is exempted from the scheme.

Regarding your query, if the employee salary exceeds Rs. 10,000 during the contribution period, you will continue such employee up to the period.

The contribution is to be deducted as 1.75% on Rs. 11,500 till the end of the period, i.e., up to September.

This is for your kind information.

Regards, P.V. Rama Rao

Dear All,

For the benefit of all, I am providing the link related to ESI. The link can be followed for further inquiry.

[ESI Act](http://www.helplinelaw.com/docs/emp-state-ins/emp-state-ins1.shtml)

Hi,

Please let me know about the PF deduction, i.e., 12% on the basic as employee contribution and 12% on the basic as employer contribution. The sealing limit is Rs 6500 per month.

My doubt is, suppose an employee receives Basic & D.A together for Rs. 11000, whether we have to deduct from the employee & employer contribution for the sealing amount of Rs. 6500 or Rs. 11000 (Employer is willing to pay his contribution for Rs. 11000).

Please clarify.

Regards,
Satheesh

Dear all,

Any idea on how many years we have to keep all the records to facilitate inspection from ESI inspector? Currently, the ESI inspector wants to examine my company documents for the year 2000-01. It is very difficult to dig out old cash books, etc. Is there any law governing this?

Well, there is no specific period mentioned in the ESI Act regarding the back period for which you are required to keep the records ready for inspection by the ESI inspectors. There is one provision regarding the Inspection Book, wherein it is mentioned that the ESI Inspection book is required to be kept safe for five years from the date of the last inspection. As per the new inspection policy, routine inspections are not done; only the defaulter units or the randomly selected units are inspected. However, you are still required to keep your accounts books ready for their inspection. Further, as per this policy, no inspections are being done without the simultaneous checking of ledger records.

Now, your question is regarding the law by which this is governed? The ESI Act doesn't lay down any specific period for keeping records except the Inspection book. However, there is a provision in the Income Tax Act wherein an assessee is required to keep the last seven years of their records safe - your CA may shed more light on this. Many of my clients, whenever they are asked about the production of old records, quote this provision and give them a letter, which is generally accepted by the department. Now, you are being asked to produce the records for 2000-01, which in my opinion, you must produce; else they'll claim ad-hoc contribution on anything they may deem fit, and in the court of law, you will not be able to defend yourself just by making a plea that the records are old and hence untraceable because the ESI will say that there is nothing in the ESI Act regarding this, and even the IT Act requires the safekeeping of the last seven years of records.

Dear Rajiv,

You are absolutely correct. Even if an increment took place in between the contribution period, then ESI contribution should extend until the completion of the contribution period. But what will happen in a case where the decision of an increment has been delayed (i.e., say until July), and thereafter the increments have been provided retrospectively from the beginning of the contribution period, say from April?

In such cases, I believe that ESI deductions should stop immediately in those cases where the gross salaries have crossed Rs 10,000 after considering the increments. The deductions pertaining to the earlier period (i.e., April, May, June) should be refunded to those employees, and Employer's contributions can be set off against the ensuing period's contributions.

I hope I am clear about this. In case of any queries regarding this, please revert back to me.

Thanks,
Sathyanarayana Bhat

Hi, this is Ketan.

Can anyone specify the relevant section or provision regarding the continuous applicability to an employee even if the salary is raised beyond $10,000.00?

Thanks,
Ketan