Confused About ESIC Calculation: Is It 1.75% of Basic or Total Earnings?

Hi, I have seen one of your comments related to salary breakup, in which you explained through an example. In that example, you showed the formula for calculating monthly ESIC as 1.75% of Basic. However, we are actually using a different formula, where ESIC = 1.75% of total earnings. This difference has caused some confusion for me. Could you please clarify this discrepancy?

Thank you.

For the purpose of calculating ESIC contribution, it is 1.75% of total earnings, not just the basic salary, if an employee is receiving Rs. 12,000/-.

Example of Salary Breakdown

For example, consider the monthly salary breakdown of an employee as follows:
- Basic: 7000.00
- HRA: 2500.00
- Conv.: 1000.00
- Misc. Allowance: 500.00
- CCA: 500.00
- Special Allowance: 500.00

In this scenario, we need to calculate the ESIC contribution based on all the components mentioned above. The salary considered for ESI contribution will be Rs. 12,000/- not just the basic salary. The contribution amounts will be Rs. 210.00 (employee's share of contribution) and Rs. 570.00 based on the calculations (Rs. 12,000 * 1.75% and Rs. 12,000 * 4.75% respectively).

I hope this clarifies the calculation process. Let me know if you need further assistance.

Best regards,

Thank you, Mr. Mukesh. I partially understood what you have explained. As you know, ESIC will be applicable to those employees whose total earnings are up to Rs. 15,000/-; previously, the limit was Rs. 10,000/-. Could you please clarify when we should use the method of calculating ESIC based on the Basic salary?

Regards,
Prajakta S. More

The ESIC contribution should not be calculated based solely on the basic salary; it should include all fixed allowances.