Understanding ESIC Act: Employee Contributions and Deductions

Hi Friends, ESIC was deducted for my friend in an IT company since his salary was less than 15,000 Rs. However, even after he received an increment with effect from January, ESIC was deducted from his salary until March when he inquired with the payroll team. One of the senior Payroll officers replied, stating that the government will consider ESIC input once a quarter and confirmed that ESIC would not be deducted with effect from April.

Kindly clarify the same. Thanks in advance.

Kindly refer to the proviso to Section 2(9) of the ESI Act, 1948, in conjunction with Rule 50 of the ESI (Central) Rules, 1952. The contributions deducted up to March 2014, which marks the closing month of the contribution period, appear to be correct.

Thank you.

As per the ESIC Act, the ESIC deduction for the employee should be done in two half-yearly cycles - April to September and from October to March. The acid test is in the months of April and October. If in these two months, the employee's salary is less than or equal to the Gross Salary of Rs. 15,000/-, he/she will have to contribute for the remaining months of that particular cycle.

In your friend's case, even if your friend's salary has crossed Rs. 15,000/- in January, he will have to contribute to the ESIC until March. Hence, his company's senior payroll officer has advised him accordingly. This is absolutely right as per the Act. You may inform your friend accordingly.

Regards,
Nanda
[Email Removed For Privacy Reasons]

Both given answers are correct. Also, remember that you will continue to receive all the benefits until the end of the first half of the year, in this case, until March.

As per Mr. Nanda, if the salary of an employee has crossed Rs. 15,000/- in January, he will have to contribute to the ESIC until March (closing of the contribution period). Kindly elaborate on what will be the wage for ESI contribution from January to March—either Rs. 15,000 (ESI limit) or the actual amount earned (over Rs. 15,000). If it is over Rs. 15,000, please provide any written explanation or notification in support of your statement.

Regards,
Bhupinder

Kindly refer to the proviso to Section 2(9) of the ESI Act, 1948, in conjunction with Rules 50 and 51 of the ESI (Central) Rules, 1952.

Definition of 'Employee' Under the ESI Act

Section 2(9) defines who qualifies as an 'employee' under the Act, including those whose wages exceed the specified limit within a contribution period. Rule 50 establishes the wage ceiling and also covers employees whose wages increase during the contribution period until its conclusion. Rule 51 specifies the rates of contribution.

Payment of Contributions

Furthermore, Sections 38 and 39 stipulate the payment of contributions for all employees as defined under the Act. If an employee's wages are raised from Rs. 15,000 to Rs. 20,000 as of January 1st, both the employee and the employer must contribute based on the new salary of Rs. 20,000 at the rates outlined in Rule 51 from January 1st until the end of the contribution period, i.e., March 31st. There is no maximum limit for contributions under the ESI Act.

If any member has doubts, I recommend seeking clarification from the appropriate Regional/Sub/Divisional office of ESIC. When the provisions of the Act and rules/regulations are clear, there is hardly a need for a written explanation, as requested by one member in their comments.

Thank you.

I agree, Mr. Mehta, but my query is that the Act does not state that the contribution of the enhanced salary during the contribution period shall be based on higher wages. Since the limit of the ESI wage is 15,000, the contribution should be paid continuously till the end of the contribution period based on the wage of 15,000.

Regards,
Bhupinder

You are free to interpret the provisions of the ESI Act, 1948, and the rules/regulations framed thereunder as you deem appropriate. However, for me, the position is very clear, particularly as laid down under Rule 50 of the ESI (Central) Rules, 1952. The contribution rates are specified, and the contribution is deducted in respect of employees. The said Act/rules/regulations provide that an employee shall continue to be an "employee" until the close of the particular contribution period during which his wages exceed the coverable limit.

Kindly refer to section 2(22) of the ESI Act, which starts with the phrase "All remuneration paid or payable in cash." This term "ALL" encompasses all types of remuneration, providing a solution to your query.

Regards,
Ramesh

Under the provisions of the ESI Act of 1948, we are required to pay contributions for employees whose salaries are less than Rs. 15,000 per month. If an employee's salary is increased through increments or any other source in the middle of the contribution period (April to September and October to March), we will continue as a member and also remit the contributions until the contribution period ends in March or September. The benefits will depend on the contribution period.

Thanks and Regards,
V R RAO PULIPAKA

Thanks for engaging in a healthy discussion. Wages (all remuneration) are defined in the act for entitlement of ESIC, i.e., up to Rs. 15,000 only. It does not specify to deduct ESI on amounts greater than or equal to Rs. 15,001. Moreover, ESI does not cover an employee drawing a salary of Rs. 15,000 or more.

Regards,
Bhupinder

As per the ESIC Act, the contributions deducted up to March 2014 should be reviewed.

Regards,
Neerj Bansal

Yes, your Payroll officer is correct. ESIC should not be deducted from the April salary.

Please be informed that ESI has the following contribution and benefit periods:

Contribution Period:
- April to September
- October to March

Benefit Period:
- January to June
- July to December

Therefore, any employee covered under ESI for a contribution period mentioned above should contribute until it completes, even after any increment in salary.

In your friend's case, the same situation occurred as he was covered under the contribution period of October-March. Hence, he will not have deductions from April, but he can avail the benefits until December.

I hope the information above is clear.

Thanks,
Hari Prasad K