ESI Deductions: What Happens When Wages Exceed Rs. 15,000 Per Month?

In the case of PF deduction, the limit is a 12% contribution (Rs. 780/-) by both the employer and employee, unless either or both parties want to contribute more.

Maximum Deduction for ESI

Is there any provision for the maximum deduction for ESI when wages exceed the limit of Rs. 15,000/- per month?

First of all, for PF, it's not maximum or minimum; it's just 12% and not limited to Rs. 780. It's rather optional to contribute above this amount if the employee's basic is more than Rs. 6500. The employer can restrict the basic for PF at Rs. 6500, but nowadays in most companies, both the shares, i.e., the employee's share as well as the employer's share, are a part of CTC. Even the employers do not restrict it to the basic of Rs. 6500, but it is to be at 12%. The major benefit of higher contribution goes to the employee because the PF contribution is non-taxable when it comes to filing IT returns.

Recent Developments in ESI

As far as ESI is concerned, please be informed that in a recent development, the ESIC has increased the upper limit of wages covered for ESI deduction from Rs. 15,000 to Rs. 25,000. However, in case the employee's consolidated salary reaches beyond the maximum wages, i.e., Rs. 25,000, it doesn't remain compulsory for the employer to keep contributing. The names of such employees whose wages cross the maximum salary can be shown in the next ESI returns.

Regards,
Raj

I would like to inform you that the Ministry of Labour & Employment, Government of India, has not yet issued a notification enhancing the wage ceiling under the Central Rules framed under the Employees' State Insurance Act, 1948. Therefore, the wage ceiling under the ESI Act, 1948, as of today, remains Rs. 15,000/-.

The contributing member mentioned above may kindly review this information and provide guidance if I am mistaken.

With kind regards,

PF Contribution Details

The PF contribution of 12% of the salary is the minimum percentage. However, the employee and also the employer, if they wish, can contribute over and above the rate of 12%. One can contribute up to 20% of the salary after completing certain formalities with the PF Office. In short, there can be a higher percentage of contribution, and the contribution can be over and above Rs. 6,500.

ESI Contribution Proposal

As regards ESI, I have sent a suggestion to the ESI Office to formulate the policy in such a way that all employees working in an establishment should be covered. However, the contribution shall be restricted to the maximum limit of the salary (presently Rs. 15,000, but likely to raise to Rs. 25,000). In other words, what I have proposed is that if an employee is deriving a salary of, say, Rs. 40,000 per month, then he should be covered under the ESI Scheme, but his contributions should be restricted to the limit, i.e., Rs. 15,000. So, he will be entitled to benefits of ESI up to Rs. 15,000 only. However, I have not received any reply from the ESI Corporation.

ESIC Contribution on Gross Salary

ESIC is computed on gross salary, not on a salary with a limit. Once the salary limit of ₹15,000 is breached, the contribution will stop at the end of the 6-month contribution period. However, while it is paid, it will be on the actual limit.

Please do not circulate incorrect information to new members or people who are not familiar with the subject matter. As Mr. Kamal Dutta mentioned, it is still 15,000. There should not be any confusion in this regard. Notification regarding the new ceiling is awaited.

Dadusha, do you want to inquire about the maximum limit of ESI coverage? If yes, then there is a maximum limit of Rs. 15,000 in the law. Individuals earning more than a gross salary of Rs. 15,000 are not eligible for ESI benefits. However, you may want to wait until the upcoming budget as this limit could potentially be increased to Rs. 25,000.

I would like to further clarify that the enhancement of the wage ceiling in Rule 50 of the ESI (Central) Rules, 1950, is carried out solely by the Ministry of Labour & Employment, Central Government, following the issuance of an intention notification for a period of 30 days. After the elapse of the 30-day period, the final notification is expected to be issued by the Central Government.

Based on the information available to me, it appears that the said Intention Notification has not yet been issued by the Central Government. Therefore, the enhancement of the wage ceiling under the ESI Act is anticipated only after the intention notification has been issued. I have noted in my remarks to be corrected if there are any errors.

With kind regards;

Can anyone tell me if the recent amendment in ESIC deduction up to ₹250,000 gross has been implemented?

Regards,
Vinod Kumar

Dear Friends,

ESIC calculation is purely based on gross earned salary, i.e., 1.75% from the employee and 4.75% from the employer. There is no provision for additional deductions in ESIC. If an employee's salary is fixed at 15,000 per month, they are eligible for ESIC benefits; otherwise, not.

For employees whose salary is less than 15,000 and receive incentives or other performance-based bonuses, those amounts also need to be deducted when calculating ESIC.

Example:

An employee with a fixed salary of Rs. 12,000, receiving an Rs. 8,000 incentive, will have ESIC calculated on the total of Rs. 20,000, not just Rs. 12,000.

Note: Annual bonuses will not be included in ESIC calculations.

Other Types of ESIC Calculations:

There are other types of ESIC calculations based on fixed assets/installations from outsiders, calculated as follows:

The total invoice amount is divided into 60% material and 40% labor. The 40% labor amount incurs a 6.5% ESI charge.

Example: Assuming the total invoice value is 100,000

- 60% material: 60,000
- 40% labor: 40,000

ESIC calculation will be on 40,000 * 6.5%, i.e., Rs. 2,600. This Rs. 2,600 is referred to as Job work, which should be deducted from the invoice value and paid in the Omitted wages option in the ESIC portal.

Thanks and Regards,

JOYSON BAPTIST PEREIRA

Sr. HR Executive

Automobile

[Email Removed For Privacy Reasons]

I have read the information furnished by you regarding the treatment of 40% of wages out of total bills for ESI compliance. However, for discussion's sake, I would like to inform you that there may be old instructions issued by the ESIC authorities in support of your information. In actual practice, these instructions are not followed, resulting in the claim that 100% of the bill amount should be treated as wages for claiming ESI contributions on such omitted wages.

In my opinion, the safe practice is that when the employer appoints any person as a contractor or casual labor for job work, the employer should insist on the maintenance of Attendance & Wages Registers for such contract/casual employees and pay ESI contributions based on actual wages. Payment of ESI contributions on an actual basis and compliance based on the actual basis for such contractor/casual employees will also entitle these employees to various benefits under the Employees' State Insurance Act, 1948, and the rules/regulations framed thereunder.

Furthermore, I believe that accepting 40% as wages out of a bill for job work, as mentioned by you, is also not within the jurisdiction of the appropriate Social Security Officer in your area.

If you have any doubts, I suggest confirming the position with the appropriate Regional/Sub-Regional Office of ESIC.

Regards,

Hi friends, we registered one of my employees in ESI 4 months ago, but recently we discovered that the person was already registered with ESI and also had a PAN card. This month, I entered his IP in the ESI website. The issue arises when we try to pay the challan as both IPs are showing for contributions. We have been making payments for the new IP for three months, but now I need to pay for his registered IP that is associated with his PAN card. What should I do about the other IP?

ESI contributions under the contract depend on the bill. If materials and labor are mentioned separately in the bill, ESI is paid on the labor portion at a rate of 6.5%. Otherwise, it will be 40% of the total bill at 6.5%.

If the contractor is not covered by ESI but the factory of the principal employer is covered under the act, then the employees would be considered covered under the principal employer. In this case, the principal employer will deduct 6.5% (1.75% from the employee and 4.75% from the employer) and pay it to ESIC.

You mentioned registers for employees. What if the contract is only for a day or a week?

Thank you.

Regards.

What if we pay ESI for an employee earning more than ₹15,000 per month from the start of the contribution period? Can the ESIC say that he is an exempt employee, hence not eligible for ESI benefits?

As an employer or HR professional dealing with ESI matters, one may cover any employee under the ESI Act, 1948, and the rules/regulations framed thereunder. However, at the time of claiming cash benefits, the eligibility of insured persons is verified by the appropriate Branch Office of ESIC. If it is found that the employee was not entitled to coverage due to wages exceeding the coverage limit as laid down in the ESI (Central) Rules, 1952, then no benefits are payable. In such an eventuality, the benefits wrongly availed earlier are all recoverable under section 70 of the said Act.

In addition, the employee or employer is liable for prosecution under section 84 of the said Act. The employee can also be barred from receiving any benefits for certain periods under Rule 62 of the ESI (Central) Rules, 1952. Please also refer to Regulation 40 of the ESI (General) Regulations, 1952, regarding the refund of contributions erroneously paid.

I understand the problems relating to the coverage of employees of medium and small-scale establishments with commercial insurance agencies and the challenges in obtaining timely benefits from these companies when situations arise. However, the issue of continuing ESI facilities for insured persons and their family members even after crossing the wage limit is a matter of policy.

Therefore, it is difficult to suggest anything in this matter since it pertains to the domain of policy-makers. You are well aware that the proposal to further enhance the wage ceiling under the ESI Act, 1948, has not yet been finalized.

Regards.