ESIC Coverage for Low-Salary Employees in Start-Up: Do We Need to Include Them?

Hi, I am working with a new start-up IT firm based in Noida. We have 14 employees currently, and 5 out of them are drawing a gross salary of less than Rs. 15,000 per month. Please advise if we need to cover them under ESIC.

Regards,
Priya

If an organization has a minimum of 10 employees on their payroll, then their organization will be covered under the ESI Act. In your case, there are 14 employees working, out of which 9 employees are excluded as per the ESI Act, but the 5 people will definitely be covered by ESI since their gross salary is less than 15,000.

Regards,
Ratikanta Rath

There is a recent judgment wherein it is held that if the ESI eligible employees are below 10, the act will not apply.

According to the information you have provided, there are a total of 14 employees, out of which 9 are receiving salaries higher than 15,000. In this scenario, based on my understanding, ESIC provisions will be applicable to your organization since the total number of employees is more than 10. However, ESIC contributions will only be deducted from 5 employees.

It is essential to maintain detailed records of the salaries paid to the employees to demonstrate that they are receiving salaries above the prescribed ESIC limit.

Additionally, if the number of employees receiving salaries below 15,000 increases, ESIC deductions will be required from those employees as per the act. To prevent any legal issues, I recommend implementing ESIC deductions.

Regards,
Atul S. Malve
Manager - HR & Admin

It is applicable only if the number of employees for whom the act is applicable goes up to 10 or more persons. In Priya's case, although they have 14 employees, there are only 5 employees who are drawing less than Rs. 15,000/- per month gross salary. Therefore, the ESI Act will not be applicable to them until the number of employees drawing gross salary below Rs. 15,000/- reaches 10.

Hope this clarifies.

Regards,
Kuldeep Singh

The ESI Act (1948) applies to the following categories of factories and establishments in the implemented areas:

- Non-seasonal factories using power and employing ten (10) or more persons
- Non-seasonal and non-power using factories and establishments employing twenty (20) or more persons.

If you go through the first line, you can easily see that it was mentioned employing 10 or more persons; nowhere is it described as 10 or more covered employees.

In the case of Priya, as she is saying her company's current employee strength is 14, that means they are generating payroll for 14 employees, and their muster roll and statutory records also maintain records for 14 employees.

Regards,
Ratikanta Rath

Clarification on ESIC Applicability

That is true. However, if you approach the ESI officials, you will be informed that the act is applicable only if the employees for whom the act is applicable total 10 or more persons. The overall number of employees in the organization is immaterial. The important factor is that the employees to whom the act applies should be 10 or more persons.

If you have labor law consultants, please consult with them.

Regards,
Kuldeep Singh

If you have any amended copies or circulars from the ESIC department related to your views, please provide them for our information. We would be grateful to you. In law, there are always loopholes, and even within a specific law, different state ESIC enforcement officers may have varying interpretations since they may be unaware of certain aspects. Therefore, if you have any circular copies, kindly share them.

Regards,
Ratikanta Rath

I do not have any circular to this effect. Maybe some other member of this group can help us. I was handling multiple companies in one of my assignments, and in one of such companies, the number of employees had exceeded 10. So we approached the ESI officials to enroll the employees as per the act. The then Deputy Director of ESI informed that the condition of 10 employees is for those on whom the act is applicable, i.e., those who are drawing a monthly gross salary of less than Rs. 15,000/-. This was the time I realized about it.

Regards,
Kuldeep Singh

Actually, a similar issue was raised in one of my client companies in Pune where the number of covered employees was below 10. The ESI held that the act was inapplicable.

OK. So, would it imply that if employees who are drawing a salary equal to or less than Rs. 15,000 are 10 or more, only then will the ESIC Act apply?

Kindly contact your local ESI Enforcement officer and provide us with an update. A single wrong decision can create significant problems for the organization in the near future.

Regards,
Ratikanta Rath