ESI Contribution Confusion: Can Incentives Push Salaries Over the Limit? Seeking Clarity from Experts

Dear Seniors, We have covered our employee under the ESI Act, but I have a doubt regarding the contribution part. Some of our drivers have a fixed salary below Rs. 15,000.00, but when I include their incentives, they consistently cross the Rs. 15,000 mark. I have calculated it as follows:

Wages and Contributions Calculation

Wages | Incentive | Total Wages | Employee Contribution | Employer Contribution
12000 | 7800 | 19800 | 347 | 941

Could you please confirm if the above calculation is correct? If possible, kindly provide the relevant act that states whether we can include the incentive part for the contribution.

Thank you in advance.

Regards,
Sintralla

Wages and Contributions Table

The table is a bit confusing, so I am sending it again.

Wages | Incentive | Total Wages | Employee Contribution | Employer Contribution
1.75% | 4.75%
12000 | 7800 | 19800 | 347 | 941

Regards

If you pay incentives every month and if the wages exceed Rs 15,000, including incentives, then the workman will not be covered under ESI.

Regards,
T. Sivasankaran

In my opinion, this incentive will not be included in the computation for the purpose of eligibility of the employee under the ESI Act. However, ESI will be deducted on that amount, just like overtime. I will confirm the rest again.

Yes,

Case I

If his total salary is $14,000.00 and the incentive is $2,000.00 (variable), then for the purpose of his coverage in the ESI Act, his salary (excluding incentive) will be considered. However, ESI will be deducted on Salary + Incentive. One more thing to note is that as ESI online deduction has started, the system automatically takes the figure of $15,000 for the ESI deductions or contributions.

This means he will be covered, but ESI will be deducted on $15,000 only. Since the incentive is variable, if the total salary including incentive is less than $15,000, then ESI will be deducted in full. If it is more than $15,000, then ESI will be deducted on $15,000.

Case II

If his total salary is $15,500.00 and the incentive is $2,000.00 (variable), then he will be exempted from the ESI.

Every employee is covered if the salary is less than ₹15,000; incentives don't matter. ESI contribution will be deducted from both salary and incentive.

Thank you.

If the total salary is Rs. 15,000.00 per month excluding incentives, ESI is applicable on both amounts. In your case, the salary is Rs. 12,000.00 + Incentive Rs. 7,800.00. The total amount is Rs. 19,800.00, so ESI is applicable on the total amount.

Regards,
Amar Pundir

Dear Sintrallaa,

If the total salary is Rs. 15,000.00 per month, excluding incentives, then ESI is applicable on both amounts.

In your case, the salary is Rs. 12,000.00 + Incentive Rs. 7,800.00, making the total amount Rs. 19,800.00. Therefore, ESI is applicable on the total amount.

If your driver's average salary + incentive exceeds Rs. 15,000, then add a minimum of Rs. 200 to his salary and exempt him from ESI deduction. This will resolve the issue of ESI remittance. The additional incentive paid can be adjusted monthly.

Regards,
Amar Pundir

Durgesh Pandey

Whatever name you designate as a component of the salary and payment made regularly in the monthly salary will be considered the total salary for ESI purposes. If it exceeds Rs. 15,000 in a month, the individual will fall out of the purview of the act.

Regards,
D. Gurumurthy LL. HR & IR Consultant Hyderabad.