Understanding ESI Deductions: What Percentage Is Taken from Your Salary and How?

Dear All, please let me know what deductions are made from an employee's salary for ESI, and at what percentage. Additionally, is it deducted from the Basic salary or the CTC?

Thank you.

ESI Deductions from Salary

Towards ESI, the only deduction from the salary is 1.75% of the gross salary paid or payable to an employee. Only employees whose gross salary does not exceed Rs 15,000 are covered by ESI. Therefore, the above-mentioned deduction is to be made from those employees who receive a salary of less than Rs 15,001.

For the purpose of coverage, gross salary is taken into account. Any amount paid at intervals of more than two months is not considered. Therefore, any sum paid as part of CTC in an interval of less than two months, excluding contributions to the employer's Provident Fund, will attract ESI. The employer's share of the contribution towards ESI is 4.75%, and this amount should never be recovered from the employee.

Regards,
Madhu.T.K

ESI Documentation and Application Process

Thank you for the information about ESI. I have a question regarding the next steps after deduction. Where do we need to submit the documents? What is the due date? Which form should we fill out? Additionally, could you please explain the procedure for applying for ESI and the purpose for which we are applying? I am seeking comprehensive information about ESI.

Regards,
Ram

Understanding ESI (Employees' State Insurance)

ESI stands for Employees' State Insurance and is a social security arrangement whereby employees and their family members receive medical benefits, disablement benefits, etc., free of charge from ESI dispensaries/hospitals and other private hospitals as notified. The medical benefits include super specialty treatments as well.

For details regarding ESI, please visit the official website of the ESI Corporation. For a brief idea about the returns and procedures, have a look at the PPT available on my blog.

Regards,
Madhu.T.K

Dear Madhu T.K.,

If I am not mistaken, the washing allowance is also not subject to deduction for contribution under ESI.

Regards,
KIRAN KALE

Kindly check the attached file, which will help in calculating ESIC contributions for employees and employers. It takes two things into account:

- Actual salary
- Earning salary

Hope this will help you.

Regards,
Shaikh

ESI Deductions and Contributions

It is calculated on the monthly salary, including Basic, ADA, Overtime, HRA, and Conveyance Allowances. We should deduct 1.75% from the employee and contribute 4.75% from the employer. Please also note that we have to pay before the 20th of the next month. We have to file returns once every six months.

Dear Friends,

Mr. Madhu and Mr. Kiran are correct.

Components Exempted from ESI

1. Washing Allowance (Maximum amount you can put).

2. Conveyance Allowance reimbursed to employees (amount should vary from person to person - if paid monthly, also no problem - it should not be included in the total Gross Salary). For this, you can have a separate statement prepared, viz., Conveyance Reimbursement.

3. Also, you may note that Shift Allowance attracts ESI. Hence, you may account it as Night Shift Conveyance Reimbursement, so that you can avoid unnecessary deduction of 4.75% ESI, and thus save some amount for your employer.

4. Any incentive amount (i.e., Attendance Bonus/Incentive) paid at an interval of more than two months is not taken into account. Please pay it quarterly to avoid ESI.

Components Exempted from PF

Now in Chennai - Ambattur EPF Office - EOs are insisting us to have Basic Pay up to 60% of Gross Salary.

The following are exempted:

1. House Rent Allowance - Please have it up to 35% of the total Gross Salary.

2. Overtime Allowance - Just to show it to EPF authorities - please have it up to 25% of the total Gross Salary (but this salary statement should not be shown to IF authorities). They will ask various questions - whether it is double wage or single wage - what are the OT hours, etc.

All other components, whatever name you call it, will attract EPF up to a sum of Rs. 6,500/- the maximum limit prescribed by EPF authorities.

I hope that I clarified some important points. If anyone differs from the above, write to me at my mail ID: [Email Removed For Privacy Reasons]

Thanks,

K. Gopalakrishnan

Sriperumbudur

Yes, you are correct. Washing allowance is not considered for the payment of contributions under Section 2(22) of the ESI Act, 1948.

With regards,
Sanagapalli
Asst. Director (Retd), ESI Corporation

Dear Madhu, I need your help in understanding how ESI is calculated. Let me take the below C2C details as an example.

Components Salary (Rs.)

Basic / Consolidated 2,000.00

*FBP 7,000.00

**Variable 3,000.00

Gross Salary 12,000.00

***Performance Allowance (10% of Gross Salary) 1,200.00

Total Salary 13,200.00

**** Statutory Bonus 1,200.00

Total C2C 14,400.00

* FBP – Flexible Business Plan allows planning and defining various components. This is basically for Income Tax provision.

** Variable is paid if 20% of 1 Lakh Sales target is met.

*** Performance Allowance is paid if 1 Lakh Sales target is met.

**** Assuming Bonus is declared as 10% on gross.

Now clarify the following:

1) Should I take Gross Salary or Total Salary or C2C to calculate ESI? I know that in any case, ESI is applicable in this case.

2) Also, the above salary can have additional earnings in the form of Incentives which can make Gross or Total or C2C cross 15 K. In this scenario, will ESI be applicable?

3) As per points 1 & 2, the salary can keep varying every month either below 15 K or more than 15 K. In such scenarios, should we keep including or excluding ESI every month as the case may be?

4) Also, the above salaries can have deductions towards PF, PT, ESI itself, and as well as any advance taken. In such scenarios, how to compute ESI?

5) Also, assuming that all the three components of the above example cross 15 K and due to absenteeism, it might fall under 15 K. In such a scenario, how is ESI calculated?

6) What are the components that I can exclude/include from/in ESI calculation and how do I do it?

It will be a great help if you can let me know the fundamentals of ESI calculation. I am in trouble and I need to calculate ESI for more than 100 people now.

Thanks for your kind help in advance.

Regards, Arvind

Dear Arvind,

You have displayed the salary structure and noted that this is for I.T. purposes. This is immaterial; you just need to go through what exactly the ESI Act requires to attract the contribution on the salary and wages.

1. It is very clear that those who are getting a salary of more than ₹15,000 per month are exempted.

2. Those who are working in non-implemented areas are also exempted.

3. In Maharashtra, those who are living in non-implemented areas are also exempted.

4. Now, let us check the components of salary/wages which attract contribution under ESI:

a. Basic

b. D.A.

c. Special Allowances

d. HRA

e. Conveyance allowance

f. Any allowance like shift, cash, supervisory, typist, plant, computer, machine, canvassing, first aid, or as you say, FBP, performance, variable—all these allowances will attract.

5. Statutory bonus as per the Payment of Bonus Act will not be treated as salary or wages.

6. Washing allowance, fuel expenditure allowance, leave encashment, and annual commission will not be treated as salary wages.

Hope this satisfies your query.

Regards,
KIRAN KALE