Confused About ESIC Deductions for Mid-Month Joiners? Let's Discuss This HR Dilemma

Hi Friends,

I am in a software company, and we have resources on third-party rolls with our partner, which are organizational entities in themselves.

Now, I have received a strange query from a resource when our partner has deducted his ESIC contribution despite him being out of the ESIC bracket with a salary of 18k per month.

When asked, the partner responded with: "As you joined in the middle of the month, you fell under ESIC, and now since it is deducted, you'll have to contribute for 6 months to come out of ESIC, as it takes a minimum of 6 months."

This is the most ridiculous argument I have ever received in my 4 years of career in HR, especially in the legal and compensation and benefits area.

They deducted it according to their whims and fancies, and now they are saying that it'll keep on getting deducted for another 5 months!

I have asked them to revert the money to the resource, but is there anything in the law that talks about half-month salary coverage under ESIC? Although it sounds ridiculous because if someone's gross is 50k and his salary is processed for 5 days, which will amount to less than 10k, can he be under ESIC?

Please share your views on the same.

Thanks!!

Regards,
Dhoop

As per ESI rules, an employee already covered will remain covered until the end of the contribution period (maximum 6 months) when his salary exceeds Rs 10,000 during such a contribution period. The contribution period means a period of six months from 1st April to 30th September and from 1st October to 31st March. Therefore, if the salary of a covered employee increases beyond Rs 10,000 in the month of January, then he will be covered and has to contribute until 31st March and will only become out of coverage in April.

In your case, whether he is an existing member or the date on which his salary increased to Rs 18,000 is not clear. If the salary hike has taken place only during this contribution period, there is nothing wrong in deducting ESI until the end of the present contribution period. However, if he is not a covered employee, the question of coming under coverage for 6 months will not arise.

Regards,
Madhu.T.K

Dear Dhoop,

When asked, the partner responded with, "As you joined in the middle of the month, you fall under ESIC. Now, since it is being deducted, you will have to contribute for 6 months as it takes a minimum of 6 months to come out of ESIC."

The comment made by your partners is correct. I have witnessed the same query in our company.

Regards,
Vipin

Hi Madhu,

Thank you for the reply. The employee's monthly gross is 18,000 Rs. But as he joined in the middle of the month, the salary paid to him for half a month was less than 10k, and thus our partner has deducted ESIC.

Now, please tell me, is it correct to deduct ESIC if his monthly gross is above 18k, and just because he worked for a few days in a month, he has to pay ESIC contribution?

Thank you!
Dhoop

Dear Dhoop,

Your resources department is useless. If you join in between the month and get 15 days' salary that is less than 10k, you become a member of ESIC. What a surprise logic given by the resources department?

Your salary is 18k at the time of joining, and you are an exempted employee from day one. I do not understand what the resources department is doing.

Thank you.

JS Malik

Hi Dhoop,

What happened in your case is really funny. I think it may be the problem of the software they use or the programmed Excel sheet that automatically calculates the ESI amount for persons with a salary less than 10,000/-. I suggest you go to your HR Manager and discuss this with him to find a solution.

Jishnu V. Nair
Tax & EPF Consultant
Kerala
Email: infomanimangalam@gmail.com

So, in this logic, if someone goes without pay for any month and falls below the ceiling, will he be a member of ESIC? That never happens. Conversely, it also never happens that if a coverable employee exceeds the ceiling on any month by virtue of OT payments (which happens often) for that particular month, his ESI is not deducted. The ESI rule is very clear about that.

You are not coverable as you have performed work for 14-15 days and have been paid Rs. 9000 (half your salary). You are not at all eligible for coverage. If they do not listen, do not despair, enjoy the facilities of ESIC, go on a sick leave for 10 days, get paid from the company and get paid from ESIC. The company ends up contributing nearly 3 times your contribution, and therefore they are the bigger losers.

Dear Dhoop,

Yes, it is a really unique problem, but a clear one as well. Other senior members have also pointed out that they cannot deduct the ESIC in this case. Please clear this matter out because if they continue doing this, then they can be in trouble in the future if someone takes legal action against them. This can also affect your company as the principal employer.

Regards,
Sandeep Kulkarni

Hello Mr. Madhu! I have a confusion. If the salary of an employee was less than 10,000/- until March and was contributing to ESIC, now he got promoted, and with effect from April, his salary is 12,000/-. In this case, will his contribution to ESIC stop, or will it continue till September?

Hi,

I think there is a misconception about the ESIC Rule. As per the ESIC Act, if your monthly gross salary is less than 10,000, then you will be under ESI Deduction irrespective of your date of joining. If your monthly salary is Rs. 10,001 and above, you will not be under the ESI purview. If you join the company in the middle of the month and as per your appointment order it clearly states that your monthly gross salary is above ESI wages, there is no question of ESI contribution from your salary.

ESI contribution periods are as follows:
- 1 April to 30 September
- 01 October to 31 March

If the deduction happens in between contribution periods, they can be adjusted in the next month, stating clerical error, and they can reimburse the amount to you. If the contribution period has ended, then nothing can be done. Only during the next contribution period will you be exempted from ESI.

Regards,
M.K.

Thanks for the reply, Mr. M. K. But my question is if a person's monthly gross was below 10,000/- and he was covered under the ESI Act (as per the rule), but in the month of March, he got a promotion and his monthly gross increased to 12,000/- with effect from April. Now, will he continue contributing to ESI till September (as per the contribution period), or will he stop contributing to ESI from April, since his monthly gross has increased to 12,000/-?

If his salary is increased with effect from April, then he is out of coverage, and he need not contribute until September because right from the commencement of the contribution period, i.e., April 1st, his salary has increased. Therefore, he becomes an uncovered employee in this contribution period.

Regards,
Madhu.T.K