Can Employees Opt-Out of the ESIC Scheme After Unexpected Salary Deductions?

Hello everyone, I am new to this forum. I am currently employed as an HR professional in an IT company. We recently implemented the ESIC scheme in our organization, but it seems to be causing some issues for our employees. This scheme wasn't in place before, and its sudden introduction has led to deductions that are impacting the employees' net take-home pay.

I would appreciate it if anyone could shed light on whether there is a process that allows employees to opt-out of this scheme. Thank you.

The act also applies to shops and establishments. Generally, shops and establishments employing more than 20 employees are covered by the Act. Those whose gross salary is less than 15,000 will be covered under ESIC. Those whose gross salary is greater than 15,000 will not be covered under ESIC.

Compliance with the ESI Act, 1948

Enforcement of the ESI Act, 1948, in any factory or establishment is a statutory requirement and requires compliance by the concerned responsible persons. I think it will not be fair for any person respecting statutory compliance to suggest any means of such avoidance except as laid down under exemption provisions under the said Act.

If your organization has 20 or more employees, you must register under ESIC as well as PF, and your organization will be applicable for the Gratuity Act as well. I hope this clears things up.

Applicability of the ESI Act 1948

Please remember that the applicability of the ESI Act 1948 is statutory in nature. Recently, the threshold limit of coverage has been brought down (by ESIC authorities) from 20 persons in employment to 10 persons. There is no exemption for persons in employment of Industrial Establishment or Commercial Establishment who fall within the purview of either the Factories Act 1948 or the Shops & Establishment Act of the respective State if he/she is drawing ₹15,000/- per month or less.

Statutory compliance cannot be compromised with the feelings of the coverable employees at any point in time. The Employer-Employee contributions are legally required to be deposited with the ESIC office within the stipulated time. Failure to do so may attract penalties and fines suo motu.

Submitted for your kind information. However, if you have any queries on the subject, please call the Toll-Free Helpline number: [Phone Number Removed For Privacy Reasons].

Regards,
Praful M Lale
Labour Law Consultant
Email: [Email Removed For Privacy Reasons]

May I also add the following for your kind information:

Coverage under the ESI Act, 1948

APPLICABILITY

Under Section 2(12), the Act is applicable to non-seasonal factories employing 10 or more persons.

Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatres, road-motor transport undertakings, and newspaper establishments employing 20 or more persons.

Further, under Section 1(5) of the Act, the Scheme has been extended to Private Medical and Educational institutions employing 20 or more persons in certain States/UTs.

*Note: 14 State Govts./UTs have reduced the threshold limit for coverage of shops and other establishments from 20 to 10 or more persons. Remaining State Governments/UTs are in the process of reducing the same.

The existing wage limit for coverage under the Act is Rs. 15,000/- per month (w.e.f. 01/05/2010).

AREAS COVERED

The ESI Scheme is being implemented area-wise by stages. The Scheme has already been implemented in different areas in the following States/Union Territories of the Indian Union.

STATES

All the States except Manipur, Sikkim, Arunachal Pradesh, and Mizoram.

Trust the above clarifies the matter.

With regards,

Regards

An excellent note on the coverage of the ESI Act narrated by Mr. Lale. It clarifies the legal position and will be very helpful to HR professionals. It is correct that 14 State Governments have reduced the threshold limit for coverage in respect of Shops & Establishments from 20 to 10. In the event that 10 employees in an establishment are employed and all are drawing a salary of more than Rs 15,000 per month, such an establishment will be required to register under the ESI Act. They do not need to pay ESI contributions since the salary of all employees exceeds Rs 15,000 (beyond the ESI limit) despite taking ESI registration/coverage.

ESI Contribution Details

ESI contribution is payable if the salary of an employee does not exceed Rs 15,000 per month gross. ESI contribution is payable at 1.75% for employees and 4.75% for employers, respectively. Half-yearly returns need to be submitted for April to September and October to March.

Regards,
Sibabrata Majumdar
Management Consultant Legal & HR
[Email Removed For Privacy Reasons]

There is no option for employees covered by ESI to opt out. The company must implement the Act and rules.

To address any further issues, you can approach the local ESI authorities.

Understanding the Benefits of the ESI Scheme

As an HR professional, it becomes your role to explain to all employees covered under ESI the benefits of the scheme. For a meager amount of 1.75% of their total salary for the month, if we calculate based on the maximum salary covered under ESI, it won't exceed Rs. 262.50 per month. The benefits covered under ESI far outweigh the amount paid.

Regards