Struggling with ESIC Rules in IT? Need Clarity on Employee Count and Salary Limits

Hi All, I would like to have detailed information on ESIC. I have read a lot of articles on ESIC on the Internet; however, the terms used everywhere are so outdated that I am unable to relate them to my current organization. I work for an IT software development firm and would like to know:

1) To pay ESIC, what is the headcount required? Is it 10 employees or 20 employees?

2) Also, if the salary limit for ESIC is 15K gross, is there any rule that a specific number of employees should earn less than 15K, and only then do you have to pay ESIC?

ESIC covers employees of non-seasonal power-using factories employing 10 or more persons, and it has been extended to cover employees in non-power using factories employing 20 or more persons. Therefore, we can't say whether it's exactly 10 or 20; it depends on the type of organization.

Every employee who is drawing a monthly gross salary less than or equal to 15,000 should be covered under the ESIC, regardless of the number of employees working in your organization.

Understanding E.S.I.C.

E.S.I.C. stands for Employee State Insurance Corporation. It covers every industry that has a minimum of 10 employees working with power or 20 employees without power. Employees receiving a gross salary of ₹15,000 per month or less are covered under E.S.I.C.

The contribution is 1.75% from the employee's gross salary and 4.75% from the employer's side. Monthly and half-yearly returns need to be filed, and now it is also available online.

Regards

Dear Prasad,

Here, I believe all your doubts are clear, but I see one query still pending. If an organization has 20 or more employees but not all are earning under 15000/-, you may also want to understand that registration under the ESIC Act is mandatory for where 20 or more employees are working.

Please let me know if you need further clarification.

Thank you.

It's 10 and above that are required for ESIC, and below 15,000 salary, all employees should be covered under that.

Coverage Under the ESI Act

1) The ESI Act was amended in 2010, and subsequent to the amendment, it covers the following establishments:

- Factories employing 10 or more persons, irrespective of whether they are using power or not.

- Establishments other than factories, like commercial establishments located in union territories and states, can be covered by virtue of notifications to be issued by either the Central Government or by State Governments respectively. Thus, to cover such establishments located in their territories, the Central Governments and State Governments had issued notifications before the amendment of the ESI Act. According to the earlier notifications, such establishments shall consist of 20 or more employees to be covered by the ESI Act. However, it appears some state governments have issued fresh notifications after the amendment, bringing down the number of employees of commercial establishments from 20 to 10 for the purpose of coverage. You need to check with the notification of your state.

2) Though only employees drawing wages of Rs. 15,000/- or less are covered, it is not necessary in the case of factories that all the ten employees shall draw wages of Rs. 15,000/- or less to cover the factory. It is enough if the factory employs ten or more persons. Regarding establishments other than factories in this regard, you need to check your state notification.

Regards,
B. Saikumar
Mumbai

First of all, please mention where your IT company is operated because in some states, ESIC is applicable to 10 employees, while in others, it is applicable to 20. Therefore, it is important to specify the location of operation as there are areas where ESIC is not applicable. Kindly provide the details of the place of business.

Regards,
Nilesh Soni

Car Lease and ESI Contribution Query

If the company is taking a car on lease from a third party at Rs. 8,000 per month rent (annual - Rs. 96,000) and providing it to the employee (XYZ), Rs. 7,500 is allocated for the driver's salary, and Rs. 10,500 is designated for fuel and car maintenance expenses.

If a reimbursement of Rs. 7,500 is given as the driver's salary to the employee (XYZ), who will be responsible for depositing the ESI contribution of the driver? Is it our company, the employee (XYZ), or is there no need for anyone to pay the ESI contribution?

If you need further clarification on this matter, please let us know.

Thanks and Regards,

Diwakar Jha

[Phone Number Removed For Privacy Reasons]

ESIC Contribution Responsibility

Based on my understanding, the employee's share is covered by the driver (XYZ) and the employer's share by a third party. However, as the principal employer, the responsibility for paying ESIC contributions for both shares lies with the company that is hiring the car.

Regards, Vijay Dere

You are in an IT Software Development Firm. Your query is on ESI, whether for your IT Software Development Firm the applicability of ESI is on 10 employees or on 20 employees, and whether this 10 or 20 employees should be coverable or total headcounts.

My answer to your query is as follows:

IT Software Development Firm as a Factory Under the ESI Act

Amendment 2010 defines a factory in Section 2 (12) as "factory" meaning any premises including the precincts thereof where ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 or a railway running shed."

According to Amendment 2010, the units where manufacturing activities are performed by 10 or more PERSONS have been brought under the ambit of the Act, irrespective of the use of POWER and irrespective of the fact that 10 or more coverable employees are engaged or not.

Therefore, the criterion for you is 10 employees and not 20 employees, and that too, headcounts.

Hope you will find my reply satisfactory.

You mentioned at the beginning of your query that you have gone through various articles on this topic and got confused. I was also confused some time back. This was due to a hidden amendment. Section 1(4) read with Section 2(12) reveals that the ESI Act is applicable to factories where ten or more persons are merely employed but does not say that they shall be employed 'for wages'.

My confusion/doubt was cleared by interaction in this forum. Thanks to this forum and the members who actively participate in such issues.

Regards.

The views given by Mr. Korgaonkar are correct as per provisions. However, for the correct legal wordings/terms, you may visit the website of ESIC where the ESI Act in detail can be read for all purposes.

Regards,
Chandok AK
RPFC (Retd.)
<link no longer exists - removed>

Confusion About ESI Contribution for Driver Salary

I am a new learner and have a confusion. Please suggest to me.

If we hire a candidate (XYZ) at a CTC of Rs. 10 Lac annually, with Rs. 6.88 Lac as Fixed Salary per year, Rs. 96,000 annually for Car Lease, and Rs. 2.16 Lac annually as Reimbursement (for Fuel expenses, Car maintenance, and Driver Salary).

If the company leases a car from a third party at a rent of Rs. 8,000 per month (Annual - Rs. 96,000) and provides it to the employee (XYZ), along with Rs. 7,500 for Driver salary and Rs. 10,500 for Fuel Expenses and Car Maintenance Expenses.

Now, if we provide a reimbursement of Rs. 7,500 as Driver Salary to the employee (XYZ), who will be responsible for depositing ESI contribution for the Driver? Is it our Company? The employee (XYZ)? Or is there no need to pay ESI Contribution by anybody?

In case you require further clarification on this, please let us know.

Thanks & Regards,
Diwakar Jha
[Phone Number Removed For Privacy Reasons]

Definition of "Wages" Under the ESI Act, 1948

1. Sir, please see the definition of the term "wages" as defined in the ESI Act, 1948. Accordingly, the employer is required to deduct the amount of contribution from the wages of employees.

2. The so-called CTC has no relevance as far as compliance under the above-said Act is concerned.