How Can I Set Up ESI, PF, and Insurance for 80 Unskilled Employees in My Company?

Hello Seniors,

I hope my question here will be resolved. I am working in a company where there is no proper process in place for salary payments, and I would like to regularize it. There are approximately 80 unskilled employees, and their work is quite critical. I need to set up their insurance, ESI, and PF benefits.

I would like to understand how to proceed with this. What is the process for implementing these benefits? How should I proceed? Please assist me with this. Your guidance will help me streamline the process.

Thank you in advance.

Hi,

Please maintain attendance properly in form 22 (muster roll). Ensure you have set proper records of every employee including joining, resigning, overtime, half-day, etc., and bifurcate as per the categories. You can maintain all of this even on MS-Excel. Then, regarding the legal aspect, you can apply to the ESI and PF office in your area, and they will guide you on how to proceed.

I hope this information will be helpful.

Regards,
Rajeev Dixit
(09901436213)

I have started doing all this as a process to get things done. I maintain every record on MS-EXCEL, and I also collect filled ESI and PF forms from the former employees. I also need to know about Workmen's Compensation Insurance Policy, how it should be done, and how it can be included in the salary. As I mentioned earlier, these employees who are with the company have critical jobs where sometimes they even need to take risks.

I hope I can get an answer for this.

Thanks in Advance, Kumara

Hi Kumaraswamy,

As per statute, both PF and ESI are applicable to your organization. You have to apply to the local PF authority and ESI office for separate code numbers for PF and ESI. You may visit the respective websites of EPF and ESI where you can view the application forms and can take print out for applying code numbers. For PF, both employees and employers will contribute at 12% of basic and DA. For ESI, the employer will contribute at 4.75% and the employee will contribute at 1.75% of the PF salary. For employees earning a wage at Rs 50/- per day, the employer will pay the full contribution, i.e., 6.5%. Books are also available for both PF and ESI.

If you are based in Kolkata, you can contact me at 9903862144 as I am a consultant on the subject under discussion.

Regards,
Kalyan Mitra

Dear Mr. Mitra,

I like your short and simple reply, but I didn't get the meaning of PF Salary which you have mentioned in the 4th line of the email. Please let me know, is this different from regular salary? Or do you mean to say the salary after deduction of PF?

Also, could you explain how to calculate ESI and PF? Please provide an example for better understanding.

Thank you.

Dear Mitra,

I didn't really understand it, and I may still need a few more clarifications. Can you provide an example? For instance, if I have to pay a basic salary of 5000 and 200 DA on a daily basis, which totals to 6000, and the overall amount is 11,000, how would I calculate the PF and ESI?

Thanks in advance.

Dear Kumara Swamy,

DA is not Daily Allowance; it means Dearness Allowance. You can't pay basic 5000 & DA 6000. Generally, DA will be quite lesser than Basic. If the total salary is 11000, then you can fix both Basic & DA to 6500, HRA, and other allowances to 5500. You can even increase Basic & DA to 7000 and reduce other allowances.

PF will be calculated at 12% only on Basic + DA and not on the Gross. The same contribution from the employer too. Here you can limit the max of PF to 6500 if the basic & DA exceed 6500.

ESI will be calculated on Gross; it is 1.75% of the Employee contribution and 4.75% of the Employer contribution; the total is 6.5%. If the gross salary exceeds 10000, then those employees will not be eligible for ESI.

For further details, you can contact me at 9343753361. Please tell me which city you are from and the location.

Hi all,

Please do not confuse the rules of PF and ESI.

As per the PF Act, the PF is to be deducted only on Basic and up to a ceiling of Rs. 6,500.00 of basic pay, Dearness Allowance, HRA, and Conveyance Allowance on which PF is not to be deducted. Please refer to the Wage definition of EPF Act. EPF: Employee share is 12%, and Employer share is a total of 13.46%, which is inclusive of EPF Employer share Plus 1% of administrative charges, 0.5% of Linked insurance, and 0.01% of other heads.

Here Basic wage is that which is fixed by the state governments by way of gazette Notifications as per the Minimum Wages Act and as well as the dearness allowance fixed for every 6 months once and released by way of gazette notifications for awareness of the industry and traders. You can get a copy of the same from your nearby or regional commissioner of labor office.

As per ESI, the ceiling is Rs. 10,000.00, which consists of (Basic and Dearness Allowance), and the HRA and Conveyance or Traveling allowance are exempted from the deduction of ESI. Please refer to the case laws given under ESI Acts. For ESI, the employee share is 1.75%, and the employer share is 4.75% on the above wages. The wage is well defined in the ESI Act; please purchase a bare act of ESI for your immediate reference.

In regard to the insurance part, ESI will look after all fatal accidents and death cases of the employees, and moreover, if you are more careful towards your employees, go for a group insurance scheme which will take care of all the medical and hospital expenses of the injured at work.

Mohan Rao Manager HR

Dear Mr. Kumaraswamy,

Process for applying:-

ESI- You have to address your application to The Officer, Employees' State Insurance Corporation, of your city with the following documents requesting for your establishment to be covered under ESI Act:

1. Form - 01
2. Trade License
3. Certificate of Incorporation
4. PAN Card
5. Owner's Residential Address Proof
6. Rent Receipt
7. Bank Statement
8. Attendance Register
9. Salary Register
10. Memorandum & Articles of Association

For PF, you have to write to The Regional Provident Fund Commissioner, Regional Provident Fund of your city with the following documents:

1. Form for allotment of Business Number
2. Document to obtain code number
3. Extension of PF coverage voluntarily
4. Consent signature of staff
5. All relevant supporting documents:
a) Copy of trade license
b) Company PAN
c) Central Sales Tax Registration
d) Certificate of Incorporation
e) Form 3
6. Audited Balance Sheets
7. Profession Tax Certificate
8. Income Tax PAN Card

Insurance - you need to talk to Agents of LIC/State Bank of India/ICICI Prudential and take quotations.

This process should get you started. In case they want any further support, the concerned officers would let you know.

All the best,

Dwipna

Thank you for the information. I have received some valuable insights that I need to follow up on. Please also let me know what I need to maintain in the wages registry. If you could provide me with an idea, I can take it from there.

Dear Kumarswamy,

Regarding your question on ESI, PF, and insurance, I believe you do not need to consider insurance when you have ESI as they serve a similar purpose. If all employees are unskilled, they should be covered under ESI if their gross salary is less than Rs 10,000.

For ESI and PF calculations, I recommend providing details for about 10 workers, including what you are currently paying and the amounts. Based on this information, you will receive a response with the necessary calculations, which will give you a better understanding of the process.

I hope this information is helpful to you.

Thanks & Regards,
Amith R.

Dear All,

To many opinions, a mixture of right and wrong seems to be creating confusions.

PF salary means all emoluments earned by an employee, excluding HRA, OT, bonus, commissions, and similar allowances. Even leave encashment attracts PF deduction. PF is deducted on regular salary, which is also called PF salary. Where basic salary is low, supposing 200 and DA is 1000, the PF salary is 1200, and the employee's and employer's contribution to PF at 12% is 144 each. Out of the employer's contribution, 8.33% of the salary goes to the pension fund and the rest to PF. For ESI, the same rule is followed; only the contribution rates are different, and employees getting PF salary over 10000 are not covered by ESI.

There is no such rule that the basic salary will always be higher than DA. There are many MNCs and other commercial houses whose employees are getting DA as fixed by various Chambers of Commerce, which are 500% or more higher than basic. This means if an employee's basic is 100, and he gets 500 as DA, PF is deducted of 600. This is agreed upon by both the management and trade unions and local labor commissioners.

Kalyan Mitra

Dear All,

This has been explained very well. Please visit the labor department in your city and collect the minimum wages pertaining to your industry and sphere of work. You need to maintain a number of registers/formats. Excel sheets have already been suggested and can be implemented. Initially, it would be trial and error, but do not give up.

ESI is compulsory, but workers' compensation helps. Please have an accident policy and workers' compensation in place. Both are not very expensive provided your management agrees to it.

All the best.

Dwipna