ESI Contribution Confusion: Should It Be Based on Gross Salary or Basic + DA?

Hi,

Kindly let us know whether ESI is to be contributed on Gross salary or Basic + DA. If we have been in existence for the past 5 years but were not registered as of that date, and then registered in March 2008, is ESI Contribution applicable from the date of incorporation or from the date of registration? If it is from the date of incorporation, what is the rate of interest applicable?

Hi,

Kindly let us know whether ESI should be contributed on Gross salary or Basic + DA. If we have been existing for the past 5 years but were not registered as of that date, and we obtained registration from March 2008, then is ESI Contribution applicable from the date of incorporation or from the date of registration? If it is from the date of incorporation, what is the applicable rate of interest?

For the calculation of ESI contribution, wages mean Basic + DA + any special allowance + HRA and such other allowances which are paid at intervals of not more than two months but do not include Traveling expenses. For deciding coverage, overtime wages paid shall not be taken into account, but for deduction and contribution of ESI, Overtime Wages should also be considered. Therefore, if an employee earns Rs 12,000 per month, of which Rs 2,001 was his OT wages, then he will be covered by ESI. However, for contribution purposes, OT will be considered as part of the wages earned.

ESI coverage is triggered when the number of employees in an industrial undertaking reaches 10. The date on which the number of your employees exceeds 9 (or reaches 10) will be considered the date of coverage, not the date of business commencement. Typically, the ESIC authorities will request retroactive contributions with interest.

Regards,

Madhu.T.K

Dear Friends,

ESI contribution is on Gross salary if it is up to Rs. 10,000/-

For Mr. Basu: It is compulsory to register the organization in ESI if the number of employees is 20 or above (only those employees whose salaries are up to Rs. 10,000). As your organization is 5 years old, it is compulsory to determine the strength of employees during that period. If it was below 20, there is no need to worry. However, if it was 20 or above, the company has to pay the previous ESI amount to the ESI authority along with the required fees and penalty.

I have a collection of ESI forms. If you want them, please let me know!

Regards,

Pankaj Chandan

Hi :) I am pursuing my final year MBA. This book is really worth it for me. Thank you for having posted it at the right time. Could you please recommend more books about how to interview candidates as an HR professional, including various assessment tests and their questions? Kindly continue posting such books.

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ESI is calculated on gross up to Rs. 10,000, and if the gross is Rs. 10,000/-, then ESI is also applicable. However, as soon as the gross salary becomes Rs. 10,001 or more, the employee is not eligible for ESI.

Other points, as mentioned by Mr. Pankaj Chandan:

- Please provide additional details for further clarification.

Please refer to the wording "as soon as the gross salary becomes Rs 10001" in the posting of prachiborkar. The out of coverage will not take place immediately on crossing the salary limit but the employee will continue to be covered by ESI till the end of the contribution period.

In ESI, there are two contribution periods, viz, April to Sept and Oct to March. If the salary crosses Rs 10000 in April, he will have to contribute till Sept, and if the salary increase takes place in Oct, then he is covered till March next year.

Regards,
Madhu.T.K

Hi Madhu!

This is Jayanthi :). Did you work with any company in Coimbatore?

Regards, Jayanthi

Dear Basu,

I would like to add in Madhus's sentence that ESIC calculates on gross salary, excluding the washing allowance. Furthermore, I think Pankaj stated that ESIC is applicable when there are 20 or more employees; as per the ESIC Act, it is 10 or more.

Maximum Wages Limit is INR 10,000 per month.
Employee Contribution - 1.75%
Employer Contribution - 4.75%
ESIC is applicable to your organization once your manpower reaches 20 or more employees. Additionally, I would like to know if your organization falls under the ESIC zone location.

Thanks,
Sushil

Hi, Madhu,

If the employees' salary increases above 10000 in the beginning month of the contribution period, then there is no need to continue that employee under ESIC. However, if the salary increases in between any month of the contribution period, then they should contribute until the end of the contributory period.

Thanks,
Sushil

Your question is somewhat personal. I believe that this is not a forum to discuss it. But let me introduce myself.

I am with ICFAI and posted at INC (Icfai National College) in Kannur, Kerala, as an Administrative Officer. Prior to joining ICFAI, I was with Hindustan Engineering Products, which was engaged in the manufacture of heavy machines. That was really a platform for me to study industrial and labor management. Lots of negotiations, unfair labor practices, charge sheets, labor courts, 7A enquiries, etc. But I had been very neutral between the management and workers, no kind of favoritism nor any inclination towards employer or employee. After the company went into liquidation, I remained with the management (even without salary for more than two years!) until an alternative was found to resume production. I was even instrumental in the memorandum of understanding whereby the new investors could resume work. However, some bitter experiences forced me to leave the company. If you ask whether I have been recognized for my service monetarily, I must say that still, the company owes me more than 3 lakhs by way of salary (in real terms of 2003, 04). I have never gone for gratuity or other dues as well. Let it be a contribution by an employee for having given employment for 13 long years. Just the opposite of gratuity!!!! Perhaps it may be my view about an employer, but I will never advise any person to stay back from what you have to get. My message to young HRs is given in my blog as "Managing the Relations".

My shift from the Manufacturing sector to Education was not intentional, but now I feel very comfortable because I work with a highly educated team, whether Faculty Members or even students who are MBA scholars.

It is a matter of immense pleasure for me to share my experience with the new generation of HR people. When I find any guy facing a problem in the organization either with the employer or with the employee(s), I recollect my experience and try to find a solution. I feel that some of my postings are taken in good spirit by many, and to that extent, I am very happy as well. In fact, in my early days with Hindustan Engineering, I was not aided by the internet and citehr.com, which is really a good platform for all of us to share and develop knowledge.

Well, do remain with citehr.

Regards,

Madhu.T.K

Dear Friends,

Thanks for your replies, which are very useful. By the way, you can visit www.esic.nic.in for more information. You can learn about the applicability and also access different ESI forms from the website. Hope this will be useful for all of you.

Chandan: My email ID is [Login to view]. Can you kindly send me the forms that we are supposed to use during the registration of ESI for a separate code or sub-code?

Regards,
Amith R.

Hi all,

I have recently joined a company as an HR/Admin Executive. I am a fresher and have a doubt regarding ESI. My question is, "whether ESI would be calculated only for the employees who earn below 10,000." What about the employees who earn more? Is there a different procedure for them?

Regards, Serine R.

ESI is applicable to those employees whose salary does not exceed Rs 10,000. For those who earn more than Rs 10,000, the provisions of the Workmen's Compensation Act will apply in case of employment injuries or death resulting from such injuries.

Regards, Madhu.T.K

This thread was started in 2008, and since then, there has been an amendment in the wages for coverage of ESI. Presently, it stands at Rs. 15,000, which is likely to be changed to Rs. 25,000 as proposed.

Madhu.T.K