Why Does My ESI and EPF Deduction Change Every Month? Let's Understand the Calculation

Why is the ESI & EPF deduction amount varying in every month's salary? How is it calculated?

Regards,
Seja Desai

It will not vary. PF will be deducted at 12% (or Rs.780/- in some organizations where basic pay is more than Rs.6,500) from employees. ESI will be deducted at 1.75% from employees (up to Gross salary Rs.15,000).

Cases Where PF & ESI Contribution Varies

PF will vary only in the month when an employee works on the National festival holiday or if he is absent. For example, if an employee is paid for 31 days in January and works on the 1st and 26th, then he has to be paid double wages for those 2 days, resulting in a variation in basic salary as he will be paid for 33 days. Similarly, if an employee is absent for 2 days, he will get the salary for 29 days, causing a variation in basic pay.

ESI will vary only if the employee is paid overtime, monthly incentive, attendance bonus, or National festival holiday. Even if the gross amount increases to more than Rs.15,000, the ESI amount will be deducted based on the actual gross earned.

Thank you.

Do you mean to refer to the PF & ESI based on our contribution or the total contribution? For individual PF & ESI, there won't be a difference in every month's salary unless there is a variance in your salary. PF constitutes 12% of your basic salary, while ESI is calculated at 1.75% of your gross salary.

Regards

Yes, you can exempt him from EPF deduction based on the wage ceiling being more than Rs. 6500/-. You can submit FORM 1 (Exemption under Paragraph 27 of the Scheme) to the PF office.

It will not vary month to month if employees' attendance is full every month. If leave without pay (LWP) is taken, then there will be a variation based on the LWP days. LWP is compensated in the following month. If employees work on national holidays (some state festival holidays also entitle double salary or one compensatory off) and choose to receive salary for those days, they will receive an extra day's salary, and PF/ESIC will be deducted from the processed salary for that month.

Overtime also affects the deduction on ESIC.

Regards,
Accord Services, Noida

Understanding EPF and ESI Calculations

EPF is calculated on the Basic + DA, while ESI is calculated on the Gross. Any component that totals for calculating EPF/ESI, if it varies from month to month, will cause EPF and ESI to differ.

The Role of the All India Consumer Index

The All India Consumer Index for Industrial Workers (AICI-IW) varies each month and serves as the basis for calculating DA. For example, for Industrial Workers, it was 197 in December 2011, and the DA will correspond to this value. In January 2012, it will normally be higher, though sometimes it may be lower.

Since DA is one of the components in determining EPF (Basic+DA) and ESI (Gross), this will vary each month. Many industries opt for monthly DA variations.

Government's Approach to DA Calculation

Regarding the Government's approach, they calculate the average for 6 months (Jan-Jun and Jul-Dec) and announce the bi-annual DA.

Regards,
Rajusiachen