ESI Dilemma: Should Contributions Continue After Mid-Year Salary Increase?

Hi seniors, if an employee falls under ESI for 6 months and after that, the gross of that employee exceeds Rs. 15,000/-, should ESI be paid until the half-yearly return of that particular year, or can it be stopped once the rise has occurred?

You will get an answer to your query at the link provided below: https://www.citehr.com/459252-esic.html

ESI should be paid until the half-yearly return of that particular year. For example, let's say an employee, Mr. Abc, received a salary hike, and the gross salary increased to 16,000 in June '13. In this case, the ESIC should be paid until we submit the half-yearly return in May '13. After that, we can stop ESIC contributions.

Thanks,
Nitesh Verma

Understanding Half-Yearly Returns

Can you please provide more information on half-yearly returns? What is it? What is the period for submission? When and how should it be submitted, and why? What are the consequences if it is not submitted, for you, ESI, and IP?

Your response will help members understand the ESI Act.

Regards

Understanding ESI Contribution Periods

It is not a half-yearly return but a contribution period. This means that an employee whose salary (ESI qualifying salary without considering unusual variable pay, like incentives, overtime pay, and other amounts like washing allowance which are excluded from wages) crosses the limit (currently Rs 15,000) in the middle of the contribution period must continue to contribute until the end of the contribution period.

For instance, if the salary crosses Rs 15,000 in June, contributions should be paid until September. Similarly, if in October the salary is increased, contributions should be paid until March, i.e., the end of the contribution period.

Salary Considerations for Coverage

The salary for coverage should only be considered as the salary for out-of-coverage. If a salary increase is due to an increase in any variable component in any month, that should not be considered an increase for the purpose of out-of-coverage. Variables that are paid at intervals of not more than two months should be considered as part of the salary. Overtime will qualify for contribution, although for deciding coverage, the same is not taken into account.

Regards,
Madhu.T.K

I agree with your views, but I have one doubt. If any employee is covered under ESI and he/she leaves in the month of July '12, what should we do? Will the ESI contributions stop at the time of leaving the company's service or not?

Yes, you have to pay the ESIC amount until the next half-yearly return.

Hi, please note that if an employee leaves in the middle of the contribution period, their contributions will automatically stop from the last day of their departure.

Regards, Sohan

Yes, you have to pay the ESIC amount until the next half-yearly return. You do not need to pay ESI from the date of leaving if the employee has left the organization. If the employee is still working and receives a salary of ₹14,800 in May and ₹19,000 or ₹20,000 in June, whatever increase he/she gets, you have to deduct 1.75% from the gross amount. You are required to pay 4.75% from the employer's contribution until the next half-yearly returns are submitted.

If an employee's gross salary is Rs. 14,500 in the month of September and after an increment, the gross salary is Rs. 15,500, from which amount do we deduct ESIC: Rs. 15,000 or Rs. 15,500?

We should deduct and contribute a contribution of Rs 15,500 and not Rs 15,000. From October onwards, he will become out of coverage.

Madhu.T.K