Can Our IT Company Stop PF and ESI Deductions? Seeking Advice on Legal and Practical Implications

Hi, I am working in an IT Company, and we have been deducting PF and ESI from our employees for the last nine months. Now, my employer wants to stop deducting PF and ESI from employees. My questions are:

1) Is the deduction of PF and ESI necessary for an ISO standardized company?
2) If not, is there any way to opt-out of PF and ESI?
3) Are there any benefits for the employer in paying PF and ESI to employees?
4) We have 25 employees in our company. If we reduce the number to less than 20, can we opt-out of PF and ESI since we are already paying it?

I am waiting for a kind and positive reply.

Thanks and regards,
Meenakshi

1. Yes, definitely you should deduct PF of their employees if they are receiving a basic salary less than 6500/- per month.

2. For PF number and for ESIC, if the employee's salary is more than 15000/- per month, then it is not necessary to deduct ESIC. However, in the half-yearly returns, the contributions should be deposited if it has started.

3. If the employees deposit their PF and ESIC contributions, they will receive insurance, further security, etc.

4. You can't stop their contribution in PF, but in ESIC, if you have started your half-yearly returns, then you should continue until the completion of returns.

Awdesh Goyal
9310779504

Dear Meenakshi,

Please find my response to your queries.

1. Is the deduction of PF and ESI necessary for an ISO standardized company?
Ans:
Deduction of PF and ESIC has nothing to do with a company having ISO certification. PF and ESIC are mandatory statutory requirements.

2. If not, then is there any way of getting out of PF and ESI?
Ans:
In the case of PF - If all your employees are drawing more than 6500/-, the employer is not liable to pay PF. In the case of ESIC - If all your employees are drawing more than 15000/-, the employer is not liable to pay ESIC.

3. Is there any benefit to an employer of paying PF and ESI to employees?
Ans:
The employer definitely benefits as he can show the contribution made towards PF and ESIC as his "Expenses," which are 100% tax-exempted.

4. We are 25 employees in our company, so if we will make it less than 20, can we come out of PF and ESI as we are already paying it?
Ans:
Ethical practices should be adhered.

Best Regards,
Hema Phaley

In addition to the views expressed by others, I am adding the following additional information for the information of everyone connected with ESI.

1. Benefits to the employer: In addition to 100% tax benefit on the employer's contribution, the employer is exempted from the provisions of the Workmen's Compensation Act and the State Maternity Benefit Act. Besides, the employer is getting a fully protected worker who can concentrate on his work and produce more.

2. Avoiding coverage by reducing the number of employees: According to section 1(6) of the ESI Act, "a factory or an establishment to which this Act applies, continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified under this Act or the manufacturing process therein ceased to be carried on with the aid of power." Thus, reducing the number of employees or stopping the usage of power for the manufacturing process does not absolve your liability to continue under the coverage of ESI.

Furthermore, 'software development' in an IT company is considered a manufacturing process with the aid of power for which 10 or more persons employed for wages (coverable employees within the wage ceiling limits) are sufficient for coverage under ESI, and not 20 as assumed by you. For this purpose, employees engaged through outsourcing or on a contract basis for security, housekeeping, casual, or temporary work are also counted.

K.V. Ramana Murty, Deputy Director (Retd.), ESIC, Hyderabad

Dear Meenakshi,

Your query is genuine. In reply, it is mandatory to deduct as per the EPF and MP Act, and ESI Act. If your company has hired a member under a salary of ₹15,000/-, ESI contribution is required, and for PF, it is ₹6,500/-. If they receive an increment and cross the limit, you have to deduct PF up to the ceiling limit of ₹6,500/-. For ESI contribution, it is not necessary if they cross ₹15,000/-. If the increment falls under the contribution period, you have to continue up to the end of the contribution period.

Regards, Manish Thaker [Phone Number Removed For Privacy Reasons]

Dear Seniors, my question is, if we are not registered with PF and ESIC due to our small structure, can we still include PF and ESIC in the CTC calculation?