ESI Contribution Dilemma: Should Salary Hike Affect Payments for April to September?

I would like to get clarification on the following scenario: An employee with a salary of 15k who has subscribed to ESI for only 2 months, say April and May, and then receives a salary hike exceeding 15k due to a promotion. Is he required to contribute for the full six-month period (April-September)? Is it correct to deduct ESI contributions based on the 15k salary until September? Please advise.

Since the salary revision took place in May, he has to contribute until September, the end of the contribution period. The contribution should be based on the revised salary and not on Rs 15,000.

Regards,
Madhu.T.K

Thank you for your clarification. The salary of the employee effective from April is 15k, and the revised salary hike effective from June is 16k. My doubt is whether the ESI deduction from June until September should be based on the 15k salary or not. Can we discontinue ESI deduction from June? Please clarify.

Regards,

No, you can't discontinue the contribution for the revised period if you are continuing the job. Once you contribute in April, you should pay the ESI deduction at the end of the half-yearly period (April to September and October to March) for a maximum of ₹15,000 only.

Yes, it is necessary to deduct ESIC on the increased wages up to September (the last month of the contribution period).

According to the ESI Act, we cannot stop contributions until the completion of the contribution period, even if the salary has crossed the ESI ceiling. However, it does not specify whether the deduction should be based on ₹15,000 or on the revised salary.

In the case of an employee drawing a salary of ₹15,000.00 and earning overtime of ₹5,000.00, the total ESI deduction will be on ₹20,000.00. This is a compulsory aspect. But deducting ESI on the revised salary is not justified according to the ceiling.

The statement "contribution cannot stop until completion of the contribution period" does not address the deduction of ESI based on actual wages or the ESI ceiling.

Please share your valuable comments.

The ESI contribution should continue until September and should be deducted on ₹15,000/- and not on ₹20,000/-.

ESIC Contribution Adjustment

Currently, when the ESIC online return is submitted every month, you can stop ESIC contributions from the following month.

Regards,
Sunil Kumar

Qualifying Salary for ESI Contributions

There exist different treatments regarding the qualifying salary for the purpose of payment of contributions. Some argue that it should be based on the increased salary without any limit, while others suggest it can be capped at Rs 15,000. In a similar scenario, the Inspector who verified my client's case noted that it should be based on the revised amount. However, it is clear that if the increase is due to overtime, the entire amount will qualify for contributions as overtime will attract ESI.

In any case, contributions should continue until the end of the contribution period. It would be beneficial if Sunil Kumar could share any notification indicating that since online systems have been introduced, we can cease payment of contributions from the month in which the salary revision took place.

Regards,
Madhu.T.K

Please share any circular reference based on which we can stop contributing in the same month if the salary increases beyond the ESI Limit. It would be helpful to many people who go by the rule book.

Thanks,
Shekhar