Understanding Overtime and ESI: How Are They Calculated Together?

Overtime Calculation and ESI Contribution

I have a query regarding the calculation of overtime. Is it included in calculating the ESI monthly contribution? Please explain how it is calculated.

Concept of OT1 and OT2 in ESI

Is there any concept of OT1 and OT2 in ESI related to overtime? If yes, what do they mean and what are the differences between OT1 and OT2? How are they calculated in ESI contribution?

Please guide me on this topic.

Thank you,

Deepak Agarwal

There is nothing like OT1 & OT2. It may be for the understanding of your establishment only.

ESI Applicability

ESI is applicable when someone's monthly salary minus the washing allowance is less than 15,000/- per month. If an employee receives a daily salary of 300/-, then his monthly salary is considered as 300 * 26 = 7,800, and he is under the ceiling limit of ESI. All earning amounts other than overtime are considered as ESI wage.

In the upper case, if he receives a production incentive or any production bonus of even 12,000/-, then his ESI wage will be 12,000 + 7,800 = 19,800 minus the washing allowance and earned overtime amount.

In case of overtime payments being made along with monthly wages, it attracts ESI, and we have to deduct from the employee at Rs. 1.75%. Additionally, the employer should pay Rs. 4.75% to the ESIC as per statutory requirements. Please ensure adherence to the statutory requirement.

Thank you.

In most manufacturing units, overtime (OT) is disbursed in two ways:

OT1 Calculation

One is OT1, i.e., 1+1. For example, if the salary for the day is 100, then it will be 100+100=200.

OT2 Calculation

The second one is OT2, which is normally paid for working on holidays. For example, if the salary per day is 100, then it would be 100+200=300. OT2 is paid based on the holidays listed by the respective government and also as per the agreement between workers and management regarding some local holidays.

Presently, in my organization, we are following the mentioned practices with a restriction on OT2.

ESIC Contribution and Overtime

Regarding the ESIC contribution: the OT should not be considered or added while calculating the ESIC limit of 15,000 for coverage purposes, as OT is not a regular income of the employee. For employees below a salary of 15,000 who are covered by ESIC and also receive OT, then ESIC is to be calculated (Employee 1.75% and employer 4.75%), as all the components are included for the deduction of ESIC contribution.

This is how we are operating in my industry. You may await senior views on this subject.

Regards,
Eswar