Curious About ESI in IT? Seeking Clarity on Coverage and Employee Criteria

Dear seniors,



I have a query on ESI. I want to know that ESI would be applicable on IT industry or not. If it is applicable then please tell me the exact date of coverage on software industries. One thing more suppose if 10-15 employees are getting less than 10 K then it would be applicable or not.

I don't have much information about ESI. I want to know the things in brief. Please help me out.

Thanks
Suman

Yes, ESI is very much applicable to IT/ITES industries.

If the gross salary of the employee is less than or equal to 10000/- per month, then ESI will be applicable. It doesn't matter how many employees are in the less than 10000/- salary bracket.

If you want to avoid ESI for 10-15 employees, you can increase the gross salary of those employees to take them out of ESI.

Regards, Amit

Dear Suman,

ESI is applicable for a software company from day one. If an establishment has 20 or more total employees, in your case, this act will apply. Applicability in respect of the number of employees is based on the total number of employees, not eligible employees as mentioned by you.

If you have a total of 25 employees, where only 15 are getting less than 10k, still this act will apply.

Thank you,
J.S. Malik

Dear Suman,

If gross salary is 10k or below, then only ESI is applicable. Gross salary is always inclusive of the employee's share of PF.

Thanks,
J. S. Malik

Hi Suman,

Gross Salary equals the sum of all earnable components of the Salary Structure that are fixed (e.g., Incentives, Bonus, etc., do not add up while calculating Gross).

To specifically answer your question, if you meant "inclusive of PF" as the Employer's portion of the PF, then Gross Salary is 10500/- minus the Employer's PF.

To find out whether ESI is applicable, add up all components of the salary that appear on the left of the payslip (Earnings, considering that no LWP is deducted in that month). Also, add any deferred payable component that is not mentioned on the payslip but accrues on a monthly basis, for example, Medical Reimbursement, LTA, etc. If the sum equals or is less than 10000/-, the employee falls into the ESI bracket.

Regards,
Neeraj K. Singh

Hey Suman,

First, you should understand why ESIC is a benefit given to employees.

Why?

The answer is to provide them with social security.

As you know, ESIC has various benefits, so it is the prime responsibility of every employer to have ESIC for those employees who are receiving a gross salary of Rs. 10,000, excluding washing allowance, okay.

If your employees are earning more than Rs. 10,000, then you may opt for Group Mediclaim/Hospitalisation from any insurance service TPA provider.

Thanks,
Shine

ESI is applicable to IT if the gross salary is 10k, then ESI is applicable; otherwise, no ESI would be applied.

Regards,
Satish

Dear [User],

The software sector is treated analogously to that of the manufacturing sector and not as a service sector concerning ESI coverage. Therefore, if there are 10 coverable employees (meaning employees or trainees whose earned gross is less than ₹10,001 per month on any day), then your company is coverable from that date onwards.

Please note that for software development (IT), the threshold limit is 10 employees, whereas for BPO (ITeS), the threshold limit is 20 employees for coverage under ESI.

Thank you.

Some companies have a tendency of giving salary in terms of a gross amount rather than splitting it into subsections, like a monthly expense. In such a case, please advise if ESI should still be applicable if the total salary is less than Rs10K?

Please review the following site: [ESIC](http://esic.nic.in/).

Thank you.

Hello Suman

There is some error in the reply of malikjs and amit lycos, I am sorry to say so. It appears that they are not aware of the famous Supreme Court judgment in Suri Case, some years back.

Let me make it clear that as per final judgement of Supreme Court only those drawingt Rs 10000 or beloe per month can be counted for the purpose of payment of ESI contribution as well for the purpose of determining whether the factory or Establishment is coverable under the ESI Law. This is final. I have in this very site few month back gave exhaustive reply and illustration on this point and I think you can search this site and get the illustration.

If the ITES or IT unit is only providing softwre support, call centre and such services, without providing any hardware support, repair, maintenance etc, it will come under the category of Establishment/Shop and not factory. But if there is any manufacturing process including mass printing of information etc. it will come under the category of Factory. For factory the required number of employee is 10 to come under ambit of ESI scheme and for Establishment (Shop) it is 20. That means the number of employees drawing Rs 10000 per month or below should be 10 or 20 (for factory and establishment). For Eg, in an establishment there are total 100 employees and 81 of them draws monthly "Wage" above Rs 10000 and only 19 draws Rs 10000 or below, then that establishment will not be covered under ESI Act. In what is called as Suris case, Supremen Court has clarified and I am not aware of any amendment by Parlisment to get over this judgment thought ESI department was trying this.

Now the word "Wage" is defined in Sec 2 (22) of the ESI act, as all cash compensation paid in consideration of work including additional money paid in periodicy less than two month. Employers contribution to ESI, EPF, Gratuity and superannuation Scheme, Annual Bonus, facilities given in kind like house, free food and reimbursement given for educational expences of child, housing, medical care etc will not be counted. Only cash payment is taken. In this "Fixed conveyance allowance" (different from reimbursement of conveyance allowance for duty or actual reimbursement as per ticket) will be treated as Wage. Whatever is defined as wage will be treated as wage for the purpose of deciding coverage and payment of contribution. For Eg. if a employees has Rs 9800 as basic, Da and other cash allowance and 300 as "fixed conveyance allownce' then his month wage is abov e Rs 10000 and he is not covered. If wearing of Unifvorm is compulsory, then washing allowance will not be treted as wage.

If you still have some doubt you need to give the wage structure for your employees and then get a reply since different companies have different nomenclature.

O. Abdul Hameed
Formerlhy Additiona Commissioner
ESI Corporation New Delhi
Now General Manager, Private Company
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Hi Friends,

Applicability of ESI Act & Rules:
(1) Factory employing 10 or more employees, whose wages do not exceed Rs. 10000/- per month.
(2) Manufacturing process being carried out without the aid of Power employing 20 or more employees.
(3) Establishments employing 20 or more employees, whose wages do not exceed Rs. 10000/- per month.
(4) Other establishments to which the Act has been made applicable by notifications.

Please revert if you need additional information or clarification.

Regards,
Shanmugham.K
info@vedaconsultants.com

Dear Mr. Hameed,

Thank you so much for the detailed clarification; however, I have one doubt regarding this. Let's suppose at one point we have 19 employees drawing wages less than 10k, and after six months, it increases to 22, then after another six months, it goes back to 18. In that case, what would be the treatment? Can the applicability under ESI be changed from time to time? And if the establishment is exempted from its compliance once the number of employees drawing wages less than 10K decreases to less than 20.

Looking forward to hearing from you.

Thanks,
Ravi Dua

Dear Mr. Dua,

A factory or establishment, once covered under the ESI Act, will always be covered irrespective of the number of employees coming down. Section 1 (6) of the ESI Act states so. So, after crossing the limit of 10 (for a factory) or 20 (for other establishments) and coming under the scheme, it will remain under the scheme even if there is only one employee drawing Rs. 10,000 or below. In some cases, all the regular employees may exceed the limit of Rs. 10,000, but there may be casual, temporary, or contract workers drawing Rs. 10,000 or below, and even then, the unit is covered. However, you have to pay contributions only for those who are covered.

An employee who is once covered under the scheme will remain covered only until the end of the Contribution Period (April to September and October to March). This means if an employee was drawing Rs. 10,000 or below in the month of April, he will be covered. But if his wage increases above Rs. 10,000 in the next month, he will still be covered until September of that year and then go out of coverage.

I hope you are clear on this.

O. Abdul Hameed
Email: oahamid@yahoo.com

If the size of the company is 55 employees, out of which there are 10 employees whose gross salary is less than or equal to 10,000, is the ESI applicable?

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In the revised text, the spelling and grammar errors have been corrected, and the text is now properly formatted with a single line break between paragraphs. The original meaning of the message has been preserved.

Hi Hameed,

I need clarification regarding the same. You mentioned that only those individuals who withdraw 10,000 or more than 10,000 are exempted from ESIC. However, based on my understanding, it is not the take-home amount but the gross amount that is considered in ESIC calculations. This means that if the gross amount is more than 10,000 or equal to 10,000, then the individual is exempted from ESIC.

Could you please clarify whether it is based on gross or net take-home pay?

Thank you.

Hi,

We have 30 employees, out of which 3 employees fall under the 10,000 limit. We do not have ESI Registration as none of our employees' salaries fell below 10K until last month.

Do we require ESI Registration?

Thanks in advance, Renjith

Dear Suman/Malikji,

ESI is applicable to software from the inception of that company. If the strength of ONLY "coverable" employees reaches 10 (and not 20), then the software company is coverable. (For IT, it is 10, whereas for ITeS, it is 20).

"Coverable" employees mean those who draw "GROSS" wages less than 10001/-. "GROSS" wages mean all regularly incurring monthly remuneration (except Washing allowance and OT). Contrary to popular belief, even "Incentive" can be added.

Washing Allowance is up to a reasonable limit (i.e., the monthly cost for washing and ironing of Uniform provided by the office). As the name suggests, it is not treated as wages but as an expense paid to defray the cost of maintaining the uniform. Therefore, ESIC doesn't allow irrational amounts under the washing allowance component of the salary structure.

Hi,

Please find attached the notification (amendment to the ESI Act).

The applicability of ESI is effective from June 2010. ESI is applicable to software/IT/shops/establishments where ten or more employees are employed, and if any one employee's wage is less than 15000/- (including Contractor's employees).

You can contact us for compliance, liaison, etc., under various labor laws as applicable.

Update on ESI Scale

The ESI scale has been increased to INR 15,000. Please take note of this update.

Regards,
Anand Mahendran
Sr. HR Executive
FTPL

Thank you, Yadavji! That was very helpful. I still have a few doubts. Are you saying that ESI is applicable to the IT sector because of the amendment of section 2(12)? Wouldn't concluding so still make it a moot point? The notifications do not seem to explicitly state the applicability. Kindly correct me if I am wrong. Looking forward to your response.

And also, is it the State government which is the governing authority as per section 2(1)?

I.E. (1) "appropriate Government" means, in respect of establishments under the control of the Central Government or a railway administration or a major port or a mine or oilfield, the Central Government, and in all other cases, the State Government.

So, won't the applicability to software industries vary from state to state basis?

According to the amendment in the ESI Act effective from June 10, this limit has been changed to 15k.