ESIC and Overtime: Should Overtime Be Included in ESIC Calculations?

Hello, can anybody tell me if we should calculate ESIC on overtime? Can we remove this component (OT) from the payslip for ESIC calculation?

Thanks & Regards,
Monali

If you want to avoid ESI for OT, you can pay the same separately or after salary.

Regards,
Raja

Thanks for your reply! But if we pay the OT separately or after salary by cash or by cheque, then isn't it affecting the balance sheet at the end of the year?

Thanks & Regards,
Monali

Max shield for ESI is 15,000, so yes, as long as the gross salary is less than 15,000, you should calculate the ESI for OT.

Thank you, Ramnaresh! But my question is different. Is it compulsory to pay the ESIC on OT? Because if we calculate OT on the payslip, then the employer has to pay a significant amount for ESIC contribution. Please provide an alternative way for this if possible.

Thanks & Regards,
Monali

Yes, it is compulsory to pay ESI on overtime. According to the Employees' State Insurance Act, 1948, it is mandatory to pay ESI if the gross salary is below Rs. 15,000. If you show overtime on the wage slip and the gross salary is below Rs. 15,000, you have to pay ESI on the overtime.

Example Calculation

For example, if your basic salary is Rs. 10,000, HRA is Rs. 2,000, and your overtime is 20 hours, then you have to pay Rs. 239 as ESI. The condition is that it should be shown in the overtime register.

It is compulsory to deduct ESIC on OT. You may avoid ESIC deduction on OT by paying the OT amount separately by voucher. However, if it is detected during an ESIC Inspection, you would not only have to pay the amount but also a penalty and interest, which could be a substantial amount. It is not only a monetary loss but also a black mark on the reputation of the organization.

It is advisable to pay all the statutory payments to avoid future complications.

Regards,
Ganesh S Iyer
"Truth Always Prevails."

As per my understanding:

1. If the gross salary (including OT) remains within ₹15,000/-, ESI will be deducted.
2. If the gross salary (including OT) exceeds ₹15,000/-, ESI will not be deducted.

Kindly rectify my understanding, whether it is right or wrong.

ESI will not be deducted for those who are earning less than 15k. ESI is calculated based on your monthly fixed pay and does not include overtime payments. Overtime payments fall under the incentive category.

ESIC Contribution on Overtime

If one has a monthly salary of Rs. 14,500, during May, he earns his salary of Rs. 14,500 and overtime of Rs. 1,000. In June, he earns his salary of Rs. 14,500 with no overtime.

What will be the ESIC contribution treatment? Please help.

Overtime and ESI Applicability

The component of overtime is not to be considered for ESI applicability. It is considered only for ESI deduction purposes. If an employee's salary excluding overtime is Rs. 14,000/- and overtime is Rs. 2,000/-, then he is covered under ESI, and ESI is to be deducted on Rs. 16,000/-.

ESI Contribution Periods

There are two contribution periods for ESI: 1st April to 30th September and 1st October to 31st March. Thus, if an employee is covered under ESIC in April, then he is to be covered for the whole contribution period, i.e., up to September. Even if his salary in May is more than Rs. 15,000/-, the employee will be out of ESIC only from October.

Hope the above clears all your doubts.

Regards,
Ganesh S Iyer

As per my experience, we are paying ESIC on overtime as well. This is because we have to consider two aspects:

1. Employees should work for 8 hours a day. If something happens during that time, ESIC will take care of it, as this is usual and is their responsibility.

2. On the other hand, regarding overtime, it is separate from normal working hours. If something happens in that context, who will be responsible? If you go to ESIC to produce an accident report, will they accept it as it is? No, they will inquire about everything - shift time, time, and place of the accident.

If gross > 15000, no ESIC. If gross > 15000 + OT amount Rs. 4000, no ESIC. If Gross Rs. 14500 + OT amount Rs. 4000 = Paying ESIC on Rs. 18000. Consider these factors: the risk of work, place of work (machinery, chemicals, heavy electrical instruments), hours of work.

According to us, the employee and the risk upon us matter.