Understanding Salary Calculations: How Do ESI and Professional Tax Deductions Work with Leave?

Salary Calculation Procedure and Related Queries

Can anyone please explain the salary calculation procedure? Additionally, I need some explanation about the following two cases:

1. In our organization, we maintain that if an employee has a gross salary of more than 10,000, no ESI amount will be deducted. For instance, if an employee takes leave for 10 days in a month, we calculate only 20 days for their salary. This situation results in a gross salary below 10,000. In such a scenario, is it applicable to deduct ESI for that month?

2. In the same case as above, will Professional Tax change? This is because Professional Tax is deducted based on a range of the employee's monthly gross salary. If an employee takes 20 days of leave, the gross salary automatically decreases, potentially leading to changes in the deduction of Professional Tax.

Can anyone please explain this? I am eagerly awaiting your valuable suggestions.

Thanks,

Baki

ESI Deduction Criteria

ESI will only be deducted if the employee is earning less than $15,000 per month. If an employee is absent, unlike PT, ESI will not be deducted as long as the gross salary remains more than $15,000.

Thank you.

Example of Salary Deductions

What I mean to say is, let's take an example. If an employee is making $20,000 per month, he is not eligible for ESI. Even if he is absent from work for 15 days, ESI will not be deducted from his salary. However, his Professional Tax (PT) will be reduced as tax is deducted on a pay-as-you-go basis, not ESI.

Based on the ESI Act, deductions will be made on the gross amount. If the salary is above Rs 15,000, there is no need to deduct. ESI will consider the fixed gross, not the earned gross. For example, if employee A's salary is Rs 15,000, they are eligible for ESI, whereas employee B, with a salary of Rs 16,000, is not eligible.

If A's earned salary is Rs 10,000 in a particular month due to absences, ESI should still be deducted. The same principle applies to PT. For PT, the gross amount of the last 6 months is considered. If the 6-month gross is Rs 75,000, a specified amount, as determined by the PT department, must be deducted. PT deductions are also based on the earned gross.

Regards,
M. Rajesh Manager-HR MRPL

Could you please clarify one thing for me? Is PT calculated based on a 6-month gross basis or a monthly gross basis?

For example, if an employee's regular gross salary is 6000/-, then PT would be deducted around 60/-. In another month, if the employee earns 12000/- due to incentives, they end up paying 150/-. Therefore, it seems that PT is calculated based on the monthly gross salary.

Your suggestions would be appreciated.

Regards,
Gupta