Is It Fair for My Company to Adjust ESI Contributions and Reduce My Take-Home Pay?

Hi,

I'm working in a private company, and I have a question regarding ESI. My gross salary is Rs 10,604, and my CTC is Rs 11,326. Due to the increase in the ESI ceiling from 10,000 to 15,000, my management is considering adjusting both the ESI contributions from my CTC (with the CTC remaining the same), resulting in a reduction in my gross salary and take-home pay. Is this the correct procedure? Kindly advise.

Regards, Rabina

Dear Rabi,

An employer cannot deduct the same from your salary. The employer's contribution is 4.75%.

It's not the correct procedure. Employees' share of ESI contribution cannot be included in CTC.

It is definitely not correct on the part of the management to deduct both contributions from you. They can only deduct 1.75% from you. The remaining 4.75% should be covered by the employer. Do not agree to this, as the amount deducted will not be beneficial to you.

Hi, dear.

Please discuss with your management the issues you believe they are handling incorrectly. If the situation does not improve, consider resigning from your job.

As per ESI rules and regulations, the company will deduct 1.75% from the gross salary of the employee. Here, gross salary excludes your conveyance allowance. The company will contribute 4.75% of your gross salary from its own, but it will not be deducted from your gross salary nor CTC. So, from your gross salary, the company will only deduct 1.75% and nothing else.

Saugata De

Dear,

It is a wrong procedure. The company has to deduct 1.75% from your gross, and the employer's contribution is 4.75%. They are following the wrong procedure. Please argue with the company.

Hi,

I have a different view on this. It depends on what the terms of employment are. In case the company has given you an appointment letter which mentions gross salary - then it cannot deduct the company's contribution to ESI. Your net salary will go down to the extent of the employee's contribution to ESI (1.75%).

However, if the company has mentioned CTC in your appointment letter, then it's their prerogative to deduct the employer's contribution to ESI from CTC. There is a difference between CTC and Gross. CTC = GROSS + Employer's contribution of PF, Employer's contribution to ESI, Gratuity provision, and other benefits which the employer extends. (If you search for more discussions on this topic, you would get more details) - It is a common practice to offer CTC to employees and not Gross (though I personally do not support it!)

Archana

Hi all,

Agreed that the employer cannot deduct more than 1.75% from an employee's gross pay, or else the impact is straight on the take-home pay. However, if the employer issues a revised structure and is not in a position to raise its annual budget, then what do you all say? The government will not bring out laws as per the convenience of all; there has to be some adjustment.

For example, a new amendment has come out in the Gratuity Act. Now the ceiling has been revised to Rs. 1,000,000/- instead of Rs. 350,000/-. So, an employee who retires a day earlier or so receives 3.5 lakhs, and a coworker who retires a week later, suppose, he receives Rs. 10 lakhs. What's your say on this? Who do you blame, the government or the employer? Resigning from a job is easy, but can you guarantee that your new employer will not do the same? Will you hop from one job to another?

What do you all have to say now?

Regards, Pinky

Hi all,

While calculating your CTC, management will add 6.5% of your gross salary towards ESI and 25.61% of Basic + DA towards EPF. Since the limits have been increased, the only solution is to ask for the difference.

Ramanandam D

Hi Rabi,

CTC means Cost to Company, which includes basic salary, HRA, conveyance allowance, any other allowances, employer's share of PF and ESI, and any other benefits.

Your salary is 10604 gross, and the CTC is 11326. What does the 722 represent if ESI is deducted from your salary?

Your salary: 10604 (1.75% of Rs. 186 is deducted from your salary)
ESI 4.75%: 504
Others: 722
Total: 11830 - this is your CTC.

So, what's the problem? Your salary is 10604, with the balance of 504 and 722 being the employer's share.

Vakil Ahmed HR Executive

Hi,

I believe only the employee's contribution (1.75% of gross) should be deducted from the take-home salary, and the employer's contribution (4.75% of gross) should be added to the CTC. The entire burden should not be placed on the employee as ESI is meant for employee benefits.

Regards,
Helical

As you mentioned, the employer's contribution can be added to the CTC. However, my employer included gratuity and bonus in my CTC. Is this the right procedure?

Dear Archana,

There is an amendment to the Act and the ceiling is raised to Rs. 15K. Irrespective of what is mentioned in the terms of employment, if gross is up to 15K, the employee is covered under the Scheme. At no point in time, whether the employer mentions it in the terms or not, the employer's contribution should not be recovered from the employee.

Employee can ask for a letter in this regard, or wait for the payslip. That should be sufficient ground to raise the issue of excess deduction from salary.

Archana,

I have a different view on this. It depends on what the terms of employment are. In case the company has given you an appointment letter that mentions gross salary, then it cannot deduct the company's contribution to ESI. Your net salary will go down to the extent of the employee's contribution to ESI (1.75%). However, if the company has mentioned CTC in your appointment letter, then it's their prerogative to deduct the employer's contribution to ESI from CTC.

There is a difference between CTC and Gross. CTC = GROSS + Employer contribution of PF, Employers' contribution to ESI, Gratuity provision, and other benefits that the employer extends. (If you search another discussion on this topic, you'd get more details) - It is common practice to offer CTC to employees and not Gross (though I personally do not support it!)

Archana

Hi All,

Good discussion, first of all. I have almost the same query. At the time of my appointment, the company promised me to give 10,000 in hand. In the month of April, they paid me 10,100 Rs as they wanted to save their contribution in ESI. Now, they are reducing my salary to 10,000 and cutting down the ESI part of 175 Rs from my in-hand salary. Is this correct on the company's part, or should I fight against it? The company mentioned 10,100 (CTC) in my offer letter when I joined in April.

• Your Monthly Gross should remain Rs. 10100, and there is no logic or justification in reducing it to Rs. 10000.
• There will be a deduction of Rs. 177 from your monthly gross of Rs. 10100 towards your contribution to ESI @ 1.75%.
• Any deviation from the above should not be accepted, as it is illegal.

Thanks & Regards

Government has amended laws to give more benefits to employees, and all employers are duty-bound to follow the law in letter and spirit. The amendment in the law has surely put some burden on employers, and they have no choice but to bear it.

Would you argue the same way in case Minimum Wages are raised due to inflation? Would you not be fair to pay at least minimum wages to your workers?

How and why employers cannot change their salary budget. There is always scope for some changes and adjustments in the budget. There is something called tolerance in any budget. What does an employer do when prices of raw materials, power, fuel, etc., go up? Will he not change his budget for such contingencies?

Agreed that the employer cannot deduct more than 1.75% from an employee's gross pay or else the impact is straight on the take-home pay. However, if the employer issues a revised structure and is not in a position to raise its annual budget, then what do you all say. The government will not bring out laws as per the convenience of all. There has to be some adjustment. For example, a new amendment has come out in the Gratuity Act; now the ceiling has been revised to Rs. 1,000,000/- instead of Rs. 350,000/-. So, an employee who retires a day earlier or so receives 3.5 lakhs, and a coworker who retires a week later, suppose, he receives Rs. 10 lakhs, what's your say in this? Who do you blame, the government or the employer? Resigning from a job is easy, but can you guarantee that your new employer will not do the same? Will you hop from one job to another? What do you all have to say now?

Regards, pinky

Dear All,

I am working in a private company. My gross salary is Rs. 16,650/- and CTC is Rs. 23,298/- per month. I want to know whether I come under Medical or ESI.

Your suggestion is highly appreciated.

Regards,
Mangesh Pawar

Hi Rabina,

Let's go by the thumb rule below - From your gross salary, the company can deduct only 1.75%. Thus, your take-home pay will be reduced by 1.75% of the gross amount only. Think of it simply as mentioned above.

Now, from your gross salary, the company has to add 4.75%. Consequently, your CTC will increase by 4.75% of the gross amount.

If the company does not wish to increase the CTC, then they have to revise your previous gross salary (in this scenario, the revised gross will be lower than your previous amount). In that case, the company will provide you with a revised appointment letter, rendering your previous appointment letter inactive.

Don't get demotivated; this applies to all of us who receive a gross salary of 15000.00 per month or less. At least, we are entitled to ESIC benefits, which hold immeasurable value irrespective of the monetary aspect.

Regards, Santo Bhowmick Asst. Manager HRD 9836387396

My dear friend,

If you are on CTC, then you can't say anything as your CTC is fixed, and they are supposed to pay you per annum as per the CTC agreed upon by you and them.

Best Regards,

Modi Ashok Kumar

Dear Rabina,

What Arhana has mentioned is correct. CTC is a different concept than the gross salary. CTC stands for cost to company, so it also includes the employer's contribution to your ESIC account as it is also a cost to the organization. I don't think they have done it with any intentions; it is just that the government has changed the clause. Anyway, ESIC is a good benefit and will help you a lot.

With regards,
Sujata

Dear Rabina,

Your employer can deduct only 1.75% for ESI contribution from your salary. The balance has to be paid by the employer. Please speak to your management; they will assist you easily.

Please find the attachment for you and your employer's reference. The file is in Notepad format, and you can also download it from the website: [ESIC - Headquarters' Office](http://www.esic.nic.in).

Rajesh Chauhan

If he or she resigns, who will run his family and who will get a job for him? Please do not give such advice as it has no meaning. The next advice is to argue with the company. If he argues and then loses the job, who will help him?

The question is whether the company is right in doing it or not, and the answer is that it is illegal on the part of the company to do this. The person has only asked this question and has never asked for advice on what he or she has to do!!!

His question is answered, and what he or she has to do is left to him, and no advice was sought.

T. Sivasankaran

Dear Aanchal,

Please note that your query is not almost the same; it's almost different. You have to contribute to the extent of 1.75% of gross as your contribution, but at the same time, the employer should also pay 4.75% as their contribution. If the salary is reduced by even a single rupee, that is incorrect. You should ask for a payslip and request the employer in writing to correct your salary. If required, you may approach the local ESI Manager for guidance and help.

Regards, Generalist 91

Dear All,

Can anybody please advise what can be done if the management is not ready to give the difference amount.

Regards,
Pinky

Let us first understand the meaning of CTC - CTC stands for Cost to Company. It means whatever the company is spending on you, whether it is in the form of P.F., ESIC, Gratuity, or concessions in the canteen, all these will be part of your CTC.

So, it is the prerogative of the management to deduct the employer's part of ESIC from your salary.

Thanks,
Rajiv Singh

Dear all,

I am working in Pvt Ltd company and I have been with the company since April 2010. At the time of joining, they provided me with a salary structure stating that my gross salary is 10500 and CTC is also 10500. However, HR did not inform me about ESI deductions starting from the next month. Starting from May, the company began deducting ESI contributions from my salary, both the employee and employer's contributions, in the form of adhoc allowance. The company deducted from my gross salary without prior notice. When I sought clarification from HR, they explained that it's the company's policy to deduct ESI in this manner. The deductions are 4.75% from my salary as well as 1.75% from the employer's side. I would appreciate guidance on how to proceed. Is it permissible for the company to deduct my ESI from my adhoc allowance? Kindly provide clarification on this matter.

Salary Structure at the Time of Joining:

- ADHOC ALLOW: 1950
- BASIC EARNED: 7000
- BONUS: 700
- HRA: 350
- TELEPHONE ALLOWANCE: 500
- GROSS SALARY: 10500
- CTC: 10500

Salary Structure Shown in the Salary Slip after ESI Implementation:

- ADHOC ALLOW: 1475
- BASIC EARNED: 7000
- BONUS: 700
- HRA: 350
- TELEPHONE ALLOWANCE: 500
- GROSS SALARY: 10025
- Employer contribution ESI: 475
- CTC: 10500

Thanks & regards,
Gagan

Dear Gagan,

As per the ESI Act, the Company has to pay its contribution of 4.75%. The Company does not have any right to deduct it from the employee. But you have agreed to a CTC of Rs. 10,500/- before the ESI amendment. After the amendment, whatever the Company spends on you is a cost to them. So, they have deducted 6.5% from your CTC. Now, the solution is:

1) Try to negotiate with management and raise your CTC to match the loss.
2) Look for a new job with a transparent deal.
3) You can challenge the present employer by producing the payslips in the Labour court if you are prepared to lose your current job.

Rams.

Dear All,

Please understand CTC means Cost to Company, i.e., the amount the company is spending on you. The ESI limit has been raised from 10,000 to 15,000, so ultimately, you will come under coverage.

Earlier: 10,604 ESI 1.75% = NIL ESI 4.75% NIL
Now: 10,604 ESI 1.75% = 186/- ESI 4.75% 504/-
So, only the amount of Rs. 186/- will be deducted from your existing Gross salary. The company has to pay its contribution. They cannot reduce your gross; if they do so, you can challenge it in the labor court.

Go ahead.

Regards,
SIDMAN

I have one question: if an employee resigned and their ESI has been deposited, but the employee declaration form-1 has not been submitted yet, what should we do?