Understanding ESIC Eligibility: Does Overtime Affect Its Calculation Based on Gross or CTC?

Hi, can anyone please explain to me about the ESIC calculation? Is it calculated based on Gross or on CTC? In my company, most employees work overtime. For example, an employee's CTC is 10,000. If they worked overtime for that month and received an additional 7,000 as overtime pay, the total gross becomes 17,000. My question is whether this employee is eligible for ESIC or not? Please help me and provide a response to this.

In your case, you are not eligible for ESI because he is getting 17,000 PM. As per the ESI Act of 1948, those earning 15,000 PM are eligible for ESI.

Contribution for ESI:

- Employee Contribution: 1.75%.
- Employer Contribution: 4.75%.

Example:

If a person is earning 10,000 PM, in this scenario, the employee's contribution on Gross Earnings would be 10,000 * 1.75%. Employer contribution on Gross Earnings would be 10,000 * 4.75%.

I hope this information clarifies the ESI eligibility and contributions. If you have any further questions, please feel free to ask.

Thank you.

ESI Coverage and Contribution Calculation

For the purpose of deciding coverage of an employee for ESI, overtime wages will not be taken into account. This means if an employee's wages are Rs 10,000 and he receives Rs 7,000 as overtime wages, he will still be covered by ESI since overtime wages will not be considered for deciding coverage.

However, for the calculation of contribution payable, the overtime wages should be taken into account. This means his contribution will be based on Rs 17,000 and not on Rs 10,000 or even Rs 15,000. The salary ceiling for coverage is Rs 15,000, and a person earning more than Rs 15,000, excluding overtime, will be out of coverage.

Regards,
Madhu.T.K

ESIC Coverage and Overtime Wages

For coverage of an employee under the ESIC scheme, overtime wages should necessarily be considered. Only those allowances that are reimbursed, such as traveling allowances, should not be taken into account.

Thanks & Regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

Dear Suneetha, The person is getting a salary of ₹10,000 per month, but he does overtime and earns an extra ₹7,000. The ESIC will deduct on ₹17,000 because he is also covered by ESIC when he does overtime. In the next month, he may receive ₹10,000 + ₹3,000 (overtime), then the ESIC will deduct on ₹13,000. When an ESIC inspector audits your firm, he will review all your ledgers and accounts. If he finds overtime accounts and if you do not deduct the ESIC contribution on those wages, he will collect a 6.50% contribution from your firm. So, I advise you to please deduct the ESI on overtime wages.

Thanks,

Regards

I do agree with Mr. Madhu's view. If an employee draws below Rs. 14,999/- gross wages, he is covered under ESIC. If he earns an additional Rs. 7,000/- as OT, even for that, you have to pay ESI contribution. Only the washing allowance is excluded from ESI contribution.

Regards,
G.K. Manjunath
Manager-HR

Clarification on ESIC Act Regulation 14

As per ESIC Act Regulation 14, there is a declaration that every person employed as an employee within the meaning of Section 2(9) of the Employees' State Insurance Act, 1948, in this factory or establishment, and in respect of a remuneration not exceeding Rs. 15,000/- (excluding remuneration for overtime work), is covered.

There is no further clarification required for overtime as it is excluded for ESI.

Regards,
Tejal Shah

Please go through what I have written in full. For "coverage," overtime wages will not be considered, but for "contribution," it should be considered.

Regards,
Madhu.T.K

As Mr. Madhu mentioned, overtime salary will not be considered for coverage decision but will be factored in for the calculation of ESI deduction. If a person's gross salary is less than Rs. 15,000, then he is eligible for coverage under ESI, and deductions should be made on his earnings, including his overtime and other earnings (except washing allowances).

Regards,
Amaravathy Srinivasan

Hi, can anyone please explain to me about the ESIC calculation? Whether it will be calculated based on Gross or on CTC? In my company, most employees work overtime. For example, if an employee's CTC is 10,000 and they did OT for that month, receiving an additional 7,000 as OT amount, then the total Gross becomes 17,000. Now, my question is: Is this employee eligible for ESIC or not? Please help me and provide a response for this.

As per the ESI, employees who earn more than Rs 6,500 per month are not eligible to receive treatment under ESI.

Clarification on ESIC Coverage and Overtime

Mr. Madhu has clearly explained the scope of ESIC coverage. As rightly pointed out by him, overtime (OT) is not considered for the purpose of deciding the wages for ESI coverage. However, while paying contributions, the total wages (wages + OT) must be considered for the payment of contributions.

The logic explained by ESIC officials is that OT is not a permanent part of the wage structure and can vary from month to month. In a given month, if the employee exceeds the ESI limit while considering his OT as wages for coverage, the subsequent month his wages can fall below the ESI limit, and he will come under the purview of ESI cover. This provision is given to enable the employee to enjoy uniform ESI benefits. Moreover, by paying the ESI contribution on the maximum wages (Wages + OT), the employee benefits as this will be considered for arriving at the daily wage of the employee. Hence, it is deemed as a double benefit for the employee.

Regards,
M.V. KANNAN

ESI Payment According to the Factory Act of 1948

As per the Factory Act of 1948, the company is required to pay ESI based on the net amount received by the employee. During the audit, they will match the ESI with the employee's net salary only.

Regards

Dear Suneetha, I do agree with Mr. Pawan. The person is getting a salary of 10,000/- per month, which means it is his CTC at which he was appointed. According to the ESIC Act, anyone who is getting a gross salary less than 15,000/- will be covered under ESI. Now, he does overtime and earns an extra 7,000/-, but he is still eligible for deduction because what if he does not do overtime next month and gets a salary according to 10,000/-. The person is covered under ESIC until his CTC exceeds 15,000/-.

Thanks,
Amit
Asst. Manager HR

ESI Rules for Factories and Establishments

ESI rules are the same for factories and establishments. The only difference is with regard to the coverage of the organization. For the coverage of a factory, only 10 employees are required, whereas for the coverage of a commercial establishment other than a factory, at least 20 persons are required. The ESI has instructed the state government to make it applicable to all 'establishments' employing 10 employees, thereby making it common for both factories and establishments.

Clarification on CTC and ESI Calculations

Dear Amit, CTC is a concept recently developed and it has no legal validity. Therefore, don't consider CTC for any calculations related to ESI, PF, or other statutory matters.

Regards,
Madhu.T.K

The ESIC Act clearly states that the ceiling amount for deducting ESI from employees is INR 15,000 per month. For those employees earning within this limit, ESI deductions are necessary. If employees receive overtime (OT) pay, ESI should be deducted separately on the OT amount. The OT amount does not affect the salary determination for an employee. The decision on ESI coverage can be based on the salary amount alone. It is advisable not to focus solely on OT.

Regards,
Lakshmikanth.M
HR Dept

ESI Coverage Clarification

As Mr. Madhu has pointed out, employees are covered under ESI up to ₹15,000. Only if they earn more than ₹15,000, say ₹15,001, are they outside the purview of ESI coverage.

Regards,
M.V. KANNAN

Hi, ESI Act covers all employees whose remuneration does not exceed Rs 15,000 per month. Monthly remuneration means monthly rated or regular/standard components (not including one-time payments like bonuses and overtime). The overtime allowances and bonuses will be considered as wages for the purpose of charging the contribution only and will not be considered for the purpose of the coverage of the employee under the scheme.

The aforesaid regular salary is Rs 10,000 per month (Basic + HRA + Conveyance + Special Allowance, etc.), which is less than Rs 15,000, so ESI will be applicable. ESI will be deducted on the total (Monthly Salary + Overtime amounts) Gross Salary. Also, note that ESI will not be deducted if any payment is made at intervals exceeding 2 months.

Thanks,
Brijesh Kumar Vishwakarma

The ESI Act covers all employees whose remuneration does not exceed Rs 15,000 per month. Monthly remuneration means monthly rated or regular/standard components, excluding one-time payments like bonuses and overtime. Overtime allowances and bonuses will be considered as wages for the purpose of charging the contribution only and will not be included for determining employee coverage under the scheme.

The aforementioned regular salary is Rs 10,000 per month (Basic + HRA + Conv + SplAll, etc.), which is less than Rs 15,000. Therefore, ESI will be applicable, and ESI deductions will be based on the total gross salary (monthly salary + overtime amounts).

Additionally, please note that ESI deductions will not apply if any payments are made at intervals exceeding 2 months.

Regards

The Employees' State Insurance (ESI) Act covers all employees whose remuneration does not exceed Rs 15,000 per month. Monthly remuneration includes monthly rated or regular/standard components but does not include one-time payments like bonuses and overtime.

Overtime allowances and bonuses will be considered as wages for the purpose of charging the contribution only and will not be considered for determining the coverage of the employee under the scheme.

The aforementioned regular salary is Rs 10,000 per month (basic salary + house rent allowance + conveyance allowance + special allowances, etc.), which is less than Rs 15,000. Hence, ESI will be applicable, and ESI deductions will be calculated on the total gross salary (monthly salary + overtime amounts).

Additionally, ESI will not be deducted if any payment is made at intervals exceeding 2 months.

Thank you,

Brijesh Kumar Vishwakarma