Understanding ESIC and PF Contributions: Are They Based on Basic Pay or Include DA and HRA?

Dear seniors and friends,

I would like to know if employees' and employers' contributions towards ESIC and PF are based on basic pay alone or basic pay with DA and HRA. Also, are PF and ESIC contributions applicable to white-collar jobs in the service industry?

Thanks and regards,
Kane

Dear Kane,

ESIC CONTRIBUTION:
EMPLOYER - 4.75% OF THE GROSS SALARY
EMPLOYEE - 1.75% OF THE GROSS SALARY

PF CONTRIBUTION:
EMPLOYER - 12% OF THE BASIC
EMPLOYEE - 12% OF THE BASIC

Hope this will help you!!

Regards,
Pankaj Chandan

For ESI contribution, Basic salary, Dearness allowance, Special allowance, HRA, and such other allowances which are paid at intervals of not exceeding two months will be considered. For EPF, only Basic salary and Dearness Allowance will be considered.

There is no distinction between blue-collar or white-collar employees in labor law. ESI is applicable to all employees drawing a monthly salary (excluding traveling allowance and overtime wages) of not more than Rs 10,000, while EPF is applicable to those whose salary at the time of joining the establishment is not more than Rs 6,500. An employee whose salary exceeds Rs 10,000 will no longer be covered by ESI from the next contribution period onwards, whereas an employee once covered by EPF will remain covered regardless of any salary increase as long as they are within the same establishment.

Regards,
Madhu.T.K

Dear Kane,

I would like to add a corollary to Shri TK Madhuji's advice. With regard to ESIC, I would like to clarify that "Overtime" cannot be considered for the purpose of coverage, i.e., to determine whether an employee falls within the ESI coverage limit. However, contributions are payable on overtime as well. Even if the combined gross income (including overtime) exceeds the ceiling limit of Rs. 10,000, contributions must be made.

For example, let's consider two cases:

1. Employee A has the following salary components:
- Basic: 6000
- DA: 2000
- HRA: 1000
- OT: 3000
Here, the gross income excluding overtime is 9000, making the employee coverable. Therefore, one should deduct 1.75% on Rs. 12,000 (not on 9000).

2. Employee B has the following components:
- Basic: 6000
- DA: 3000
- HRA: 2000
- OT: 1000
In this case, the gross income excluding overtime is 11000, which exceeds the limit of Rs. 10,000. Hence, the employee is exempted from coverage, and no deductions are required.

Thank you.