Understanding ESI Deductions: Does Overtime Affect Gross Salary Calculations?

I wanted to ask whether overtime allowance is included in the gross salary for ESI deduction or not. Secondly, if the monthly salary of a person is increased from 14,000 to 18,000, on what salary is ESI deducted?

- Yes, overtime salary is a part of the gross salary, and ESI must be deducted from it.

- If Rs. 14,000 increases to Rs. 18,000, then you also have to deduct ESI on the total gross of Rs. 18,000 (1.75% from the employee), and the company needs to add it as part of the 4.75% on the Rs. 18,000 gross salary.

I hope your confusion is cleared now.

I wanted to ask further, if the salary is increased (from 14,000 to 18,000) in between any of the contribution periods of ESI, either April-September or October-March, will ESI still be deducted on ₹18,000 until that contribution period ends?

The ESIC coverage is up to ₹15,000 gross salary. How can we deduct on ₹18,000? Please clarify my doubt.

ESI Deduction for Overtime Wages

ESI has to be deducted for overtime wages, but it should not be included in the gross workings. Keep it as a separate input for OT wages.

Secondly, you've mentioned a range of 14,000 to 18,000. As per the ESI Act, the limit is less than Rs. 15,000 (Gross) for deduction. In case the employee's wage is increased in the middle of the contribution period, which means "Apr to Sep" and "Oct to Mar," we have to deduct full wages (gross) that he earned or is earning until that contribution period is completed.

The ESI ceiling is up to Rs. 15,000. You have to pay the ESI contribution on overtime as well, but it should not be considered towards the ESI ceiling amount. If an employee crosses the ceiling amount of Rs. 15,000 before the next contribution period (from April to September and October to March), you have to deduct the contribution and pay accordingly. Washing Allowance (if you provide uniforms) and Conveyance (depending on the quantum) are exempted from ESI contribution.

Hope this clarifies your doubts.

Regards,
G.K. Manjunath, Sr. Manager-HR

Definition of "Wages/Salary" for ESI

Please go through the attachment for the definition of "Wages/Salary" for ESI. The ongoing ESI contribution should continue until the close of the half-year period if the salary has been increased to more than Rs. 15,000 in between. If the salary was increased before 1.9.12, then there is no need to continue from September 2012. On the other hand, if the salary increased to more than Rs. 15,000 from 1.9.12, then you have to continue up to 31.3.2013 and discontinue thereafter. Is it clear?

For any clarification, you can check the ESI website or CiteHR links where this subject was already discussed.

Regards,
Kumar S.

I wanted to ask whether overtime allowance is included in the gross salary for ESI deduction or not. Secondly, if the monthly salary of a person is increased from 14,000 to 18,000 monthly, then on what salary is ESI deducted?

Understanding ESI Deductions

Wages include other additional remuneration paid at intervals not exceeding two months' wages. Normally, overtime payment has to be examined in detail within the particular company to determine if it is considered additional income. Also, the definition of employees in this act is detailed and needs to be considered accordingly, which is very broad compared to other respective statutes. The reference to wages is the only mention in the Act.

The Employees' State Insurance Act, 1948

The Employees' State Insurance Act, 1948, is among the first major legislation promulgated on Social Security in Independent India. The acts are also available with commentary, which is a must-read compendium for HR professionals in any concerned units.

ESI Limits and Calculations

Limits for ESI are Rs. 15,000, and it is calculated on gross wages but is not deducted from the washing allowance if the employer has provided a dress. I believe I am correct, but I would appreciate input from senior members.

Regards,
DSP

WASHING ALLOWANCE:
It is a sum paid to defray special expenses entailed by the nature of employment, and as such, this amount does not count as wages.
(In lieu of old instructions issued vide Memo No. Ins. III/2/1/65 dated 8.2.1967)

Dear Madam,

Overtime is calculated based on the basic salary, but it should not be included in the calculation of ESIC/Basic.

Another important point to note is that ESI will be deducted on Rs. 18,000.

Regards