Understanding ESI and PF Deductions: How Do Salary Changes and Policies Affect You?

I have a lot of confusion on ESI and PF Matters:

1) ESI and PF Deduction for Rs. 14,000 Salary

If an employee's salary is Rs. 14,000/- (assuming Basic + DA and no other component) and he took leaves for 5 days, his gross salary is Rs. 14,000. After considering the leaves, his salary will be Rs. 11,667/-. Now, will ESI be deducted on Rs. 11,667 or Rs. 14,000/-? And why? PF is also liable to be deducted on Basic + DA. In this case, will PF be deducted on Rs. 15,000, Rs. 11,667, or Rs. 14,000/-? (Please reply ASAP)

2) ESI and PF Deduction for Rs. 16,000 Salary

If in the above case his salary is Rs. 16,000/-, then what will be the deduction amount for ESI and PF?

3) Deducting Employee and Employer Share

Our management has decided to deduct the employee and employer share from the employee's salary only. What will be the consequences of this case?

4) Salary Calculation Based on 30 Days

Our accountant calculates every month's salary on the basis of 30 days even if the month has 28 or 31 days. Is this correct?

I am waiting for your response.

Thanks in Advance,

Garima

That's a good question for everyone to gain basic knowledge. PF & ESI are always deducted based on the earned Basic + DA. In your case, 11,667 is the earned basic, so deductions should be made on that amount.

ESI Contribution on Leave and Wage Limit Clarifications

1. ESI contribution on wages paid during sanctioned leave is payable. However, ESI contribution on leave encashment, if permissible after a selected year or period, is not payable.

2. At present, the ESI wage limit is Rs. 15,000/-. Therefore, contribution on Rs. 16,000/- as wages is not payable, provided this amount does not include overtime and the employee has been receiving Rs. 16,000/- since the beginning of the current contribution period. If the employee's salary is enhanced in any month during the contribution period, the contribution must be deducted until the end of the contribution period. (Section 2(9) & Rule 50).

3. Deducting the employer's share of contribution from employees' wages is a violation of the provisions of the ESI Act, 1948, and is an offense punishable under the said Act. (Section 40 & 85(b)). However, the term "CTC," as commonly used in HR circles, is different from "wages."

4. The terms "wage period" (Section 2(24)) and "average daily wages during a wage period" (Rule 2(1-B)) are defined under the said Act and the rules framed thereunder. Please refer to these definitions.

If you have any more doubts, I suggest you seek clarification in writing from the appropriate office of ESIC before making any decisions to avoid any violation or levy of interest or penalty due to incorrect application of the provisions of the said Act and the rules/regulations framed thereunder.

Regards,

PF and ESI Calculation Clarification

PF is calculated on Basic + DA. ESI is calculated on Earned Gross.

Thank you.

Regards

Can you please clarify? If a person's Gross Salary is 18k, but due to a loss of pay, they earn only 13,000/- in a particular month, let's say, September 2014, what will be the contribution amount for that month? Will it be 15,000 * 12% = 1,800/- or 13,000 * 12% = 1,560/-?

Thanks,
Bhuvana.

PF Deduction Calculation

PF deduction will be calculated based on the Basic + DA of the employee. The percentage of Basic + DA will depend on the company policy. If your company's Basic + DA is 50%, then the PF deduction will be calculated as follows: 13000 * 50% = 6500. Therefore, Basic + DA = 6500/-. Subsequently, the PF deduction will be 6500 * 12% = 780/-.

For any clarification, you can contact [Phone Number Removed For Privacy Reasons].

Regards,
Sudhakar

Dear Bhuvana, there are many things such as the practical calculation of PF. It depends on earnings during the month. If Basic + DA is only Rs. 13,000 for the month of Sept-14, then the calculation will be Rs. 13,000 * 12% = Rs. 1,560 from the employee's part contribution.

If you want to discuss this topic, I will surely help you. This is a very interesting topic regarding PF contribution, and you will surely learn more new things about PF through our discussion.

Regards,
Sukhpal
[Phone Number Removed For Privacy Reasons]

You should always calculate the PF deductions on the earned salary of the respective month, i.e., you should calculate 13,000 * 12% = 1,560/-.

Regards,
Ankireddy

I am providing the following reply in response to your queries in a simple way to understand:

1) ESI and PF Contributions

ESI as well as PF contributions will be deducted on Rs. 11,667, which is the total salary earned by an employee during the month in question. Please note that ESI contribution is payable on the gross salary, and PF contribution is payable on Basic & DA.

2) Salary Revision and PF Contribution

Due to the annual increment, the aforementioned employee's salary is revised to Rs. 16,000 per month (Basic & DA). PF contribution will be deducted at 12% on Rs. 15,000 per month from the employee, and the employer's contribution will be at 12% plus 1.61% Admin charges (Total 13.61%).

As the ESI ceiling limit is Rs. 15,000 per month, no ESI contribution is payable. However, if the employee's salary is increased in any month during the contribution period, his contribution is required to be deducted until the end of the contribution period, i.e., April to September and October to March. Once the contribution period is over, you are not required to deduct and deposit ESI contribution for the said employee since he is out of the ESI coverage.

3) Legal Implications of Salary Deductions

Your management has decided to deduct from the employee's salary, which is contrary to the PF Act. It is highly illegal. Therefore, I urge you not to make this decision. In this regard, I refer to a recent decision of the Apex Court in the matter of PF Commissioner vs. Group 4 Security.

4) Wage Period and Average Daily Wages

Please follow the "wage period" and "average daily wages during a wage period as per the Act & Rules." However, in accordance with the Minimum Wages Act, average daily wages can be ascertained as follows: total monthly wages divided by 26 to get daily wages.

Thank you.

In fact, I read your post on the day you posted it. I got confused myself on that day and decided not to reply. Learned members, including Harsh Kumar ji and Sibabrata ji, since they contributed to your post, I read your post again. You are a new member on this knowledge-sharing platform. I do not know how experienced you are in HR, but it seems from your post that you are a fresher.

Understanding Salary Components

What I feel is that you should first try to understand what salary is or what constitutes salary. Your question is basically on Salary. I will advise you to first study some salary sheets and try to understand how the salary is calculated.

There are four basic parts in the salary sheet:
- The first one is attendance or days payable and rate of salary.
- The second one is earnings with Gross Amount.
- The third one is deductions.
- The fourth one is Net Payable, i.e., Gross minus deductions.

It seems you have made a mistake in writing I think you mean to say - Gross Salary is Rs. 14,000 and if 5 days leave salary is deducted, then Gross Salary would be Rs. 11,667.

Clarification on ESI and PF Deductions

Now your question is, whether ESI is to be deducted on Rs. 14,000 or on Rs. 11,667 and PF is to be deducted on Rs. 14,000 or on Rs. 11,667 or on Rs. 15,000? The answer to your question is as follows:

PF and ESI are deducted on earned salary. Earned salary is inclusive of leave salary. PF is deducted on earned Basic + DA, and ESI is deducted on earned Gross. In your case, Basic + DA and Gross are the same. So PF as well as ESI will be deducted on Rs. 14,000.

Hope your confusion is removed.

Dear Garima, I have read all comments and I think you have a lot of confusion. So, I want to clear your doubts in a few words. Just follow and you'll see if it's correct or wrong. If needed, you can search on Google. Please find the details below:

ESIC

Suppose Ram, an employee, has a gross salary of 15,000/- (including Basic+DA+Other) for 30 days. If they work the whole month, earning 15,000/-, then as per the ESIC act, if any employee earns a gross salary or wage of 15,000, they are exempted from ESIC. If they earn less than 15,000, they are liable for ESIC.

PF

Suppose Ram's gross salary is 15,000, and your company splits his salary like (PF+DA = 6,500 + other + 8,500), then your company deducts PF from Basic+DA*12%.

Regarding your most important query about leave encashment,

Suppose Ram worked 25 days in a month, then 5 days are his leave. When you calculate his salary, he has earned 25 days' salary + 5 days leave encashment, making his salary 15,000/-.

If you have any queries or problems, feel free to contact me via my email: [Email Removed For Privacy Reasons]

For any compliance-related issues, you can also reach out to me through my email.

Thanks & Regards,

Ashish Shaw

Please help me understand my query. My salary is Rs. 15,000/-, with a basic of Rs. 6,000/-. They usually deduct Rs. 780 + Rs. 780/- for PF contribution, but this month they deducted Rs. 1,800 + Rs. 1,800/-. Is this correct?

PF Withdrawal and Resignation

As far as I know, an employee receives the PF amount when they separate from the company. Will an employee receive it even if they resign after 5 or 6 months?

Looking forward to your kind support.

Thanks,
Sabaq

If an employee's gross salary is ₹17,000 but, due to a loss of pay, earns only ₹14,000 gross in that particular month, is it compulsory to pay ESIC even for that month? Please confirm.

Thanks,
Shalaka

Thank you all for clarifying my doubt. In my query, I had mentioned gross salary instead of BASIC+DA by mistake. So, my understanding is that the PF contribution (both employer and employee) will vary if there is a loss of pay, and it's not a constant figure.

Thank you.

Hi all, could you please help me with my queries? My salary is ₹15,000/-, out of which the basic is ₹6,000/-. So, the PF deduction was ₹780 + ₹780/-. However, this month the PF deduction was ₹1,800 + ₹1,800/-. Is this correct? If an employee leaves an organization after 5 months, will they still receive the PF money?

I have a confusion regarding PF calculation. If an employee joined on the 24th of September 2014, what would be his PF contribution for the September month? His CTC is 17,000, with basic + DA amounting to 10,200. As per our policy, his September salary will be calculated along with the October month salary. So, what would be his PF deduction for September?

You are aware that the PF ceiling has been raised from Rs 6,500/PM to Rs 15,000/PM with effect from September-14. An employee joined your company on 24th September-14 at a CTC of Rs 17,000/PM, which includes Basic & DA Rs. 10,200/PM. The employee will receive 8 days' salary for September-14 and a full month's salary for October-14. According to the company policy, you will disburse his salary for September-14 & October-14 together.

If my assumption is correct, you are to deduct PF contribution at 12% on 8 days of Basic & DA for September-14. For the salary of October-14, you are to deduct 12% on Rs 10,200 (Basic & DA) from the employee's salary. The employer will be required to contribute at 13.61% on Basic & DA.

When depositing the PF contribution for October-14, you are also required to show and deposit the arrear contribution for September-14 since his date of birth is 24th September-14.

As per the new amendment, the limit has been increased to 15,000. Now, if an employee has a gross salary of 30,000 (basic + HRA + MA + other allowances) but his basic is 12,000, what amount should be considered for EPF contribution? Please help.

EPF is to be calculated on BASIC + DA. In your case, only Basic is available. Hence, EPF should be 12,000 * 12% = 1,440/- for both the employer and employee.

Thank you very much for the response. Could you please also clarify how the DA is defined? Will other allowances qualify as DA? In our organization, we are following the above-mentioned structure.

Procedure for PF Compliance for Establishments Started in 2012

I want to know if an establishment started in 2012 with a workforce of 100 headcount, and that establishment had not registered itself with PF. Now in 2014, that establishment wants to complete the PF compliance, then what is the procedure? Please suggest me.

Regards,
Shubhlash

Suppose "Mr. X" joined your company on 1st March 2014, and his gross salary is ₹16,000 per month for 30 days, including 4 weekly offs (Sundays). He took leave for 4 days (CL) on 15th October 2014. The approved salary will be calculated on present days, which are 26 + leave days 4 = 30 days. This means the 4 leave days are also paid by the company because he is eligible for 4 days leave with salary under the Shops & Establishment Act. He has earned 6.67 days CL and 9.33 days PL to date. His PF deduction is on Basic + DA, with a maximum of ₹15,000, and he is not eligible for ESIC because his salary is more than ₹15,001. As per ESIC rules, you can deduct ESIC up to ₹15,000 maximum.

Your 3rd Answer: If you employ an employee with CTC, then you can deduct both sides' share from the employee.

If you do not understand, you can communicate with me through my email ID.

Thanks & Regards,
Ashish Shaw
[Email Removed For Privacy Reasons], [Email Removed For Privacy Reasons]