Understanding ESI Deduction and PF Calculation in Employee Benefits

Hi,

I have a doubt regarding ESI. In my company, my salary breakup is provided as follows:

Basic: 6210
HRA: 2760
Conveyance: 2960
Telephone: 500
Gross: 12430
Company's contribution to PF: 780
Company's contribution to ESI: 590
Annual performance: 14400
Compensation: 15000

My questions are as follows:
1) Is ESI and PF included in Gross?
2) Is ESI deductible if an employee's gross salary is more than 15000 per month?
3) Please provide the correct amount required for deduction.

Thank you

Dear Gajavivek,

It seems that your PF calculation is incorrect. The company's contribution is shown on the higher side; it should be calculated based on 6500/- and not on the actual amount.

PF is calculated on Basic Allowance (BA) + Dearness Allowance (DA), while ESIC is calculated on the gross salary, including any incentives, overtime (OT), or performance pay paid along with the salary in any prescribed month.

Thank you.

Sir,

Contribution under the Employees' State Insurance Act, 1948, on total wages of Rs. 12430/- per month works out to Rs. 218/- (employees' share @ 1.75%) and employers' share @ Rs. 4.75%, totaling Rs. 591/-. In total, it amounts to Rs. 809/-. Both employees' share of contribution and employers' share of contributions are to be rounded to the next higher multiple of one rupee.

Employers cannot deduct their share of the contribution from the total wages of the employee, i.e., from Rs. 12430/-. However, if the employer is making other calculations to assess the total expenses on any employee, then it is their own outlook. In my opinion, there is nothing wrong with calculating the total liability concerning any employee.

You have not mentioned what "Annual Performance Compensation" entails. If it is paid yearly and is similar to an annual bonus, then, in my view, it is not part of wages, and contributions under the ESI Act, 1948, are not payable on said "Annual Performance Compensation."

Sir,

I would like to further clarify that the rounding of the employer's share of contribution under the ESI Act is not to be done individually for all employees. Instead, it should be done at the time of preparing the monthly challan for payment, based on the total coverable wages of all covered/coverable employees. Therefore, the employer's share of contribution, amounting to Rs. 590/- (based on your coverable wages) under the aforementioned Act, is correct.

Thank you.

Dear Gajavivek,

1) Since your basic amount is less than Rs. 6500/-, PF has to be calculated on the actual Basic amount. Please check with your HR. ESIC & PF are not a part of Gross. They are a part of CTC.

2) ESIC limit is Rs. 15000/- so those whose gross is less than Rs. 15000/- are only eligible for ESIC.

3) Gross - Rs. 12430/- Emp. ESIC @ 1.75% - Rs. 218/- Emp. PF @ 12% - Rs. 745/- (Basic*12%) other deductions if any Net Payable - Rs. 11467/-

Sir,

I have one more doubt. If I am getting a Gross Salary of more than Rs10,000/-, am I not eligible for ESI Deduction? Is it right or wrong? Please explain.

Hi, Anonymous,

It seems that you have not read the trailing mail of Geetha N where it has been clearly mentioned that "ESIC limit is Rs. 15,000/- so whose gross is less than 15,000/- only they are eligible for ESIC". Now coming to your query, though presently you are getting Rs. 10,000/- per month, you are eligible for ESI contribution deduction, and you will continue until your salary reaches above Rs. 15,000/- per month.

BS Kalsi
Member since Aug 2011