Is Our New Hire Eligible for ESIC with a Gross Salary Just Above Rs. 15,000?

Dear Senior, I am working as an HR with a software development firm, and I am new to this company. We currently have 33 employees whose net salary is above Rs. 15,000.

Recently, we hired an employee who was in training, and the Cost to Company (CTC) offered to him is Rs. 181,200. His gross salary is Rs. 15,100, which includes employer and employee PF contributions in his CTC.

Could you please clarify if he would be eligible for ESIC? Additionally, in our company, no employee's gross salary is below Rs. 15,000. Would this make our company eligible for ESIC?

Looking forward to your guidance.

Thanks & Regards,
Ranjeeta

1. Sir, the term "CTC" is neither wages, nor does this word have any legal meaning in the Acts as mentioned by you.

2. I suggest you go through the term "wages" as mentioned in the EPF & MP Act, 1952 & EPF Scheme, 1952 as well as in the ESI Act, 1948 and the rules framed thereunder.

3. After deciding what constitutes "wages" in the above Acts, you may decide on the eligibility of employees under the above Acts.

CTC has no meaning in ESI and PF calculations. You need to calculate gross wages for ESI as well as PF. Please refer to Harsh's reply.

Regards,
Amar

Thank you for fully understanding my issue. I want to ask the same questions as the querist:

i. Is the newly joined employee with a gross salary below Rs. 15,000 coverable under ESI or not?

ii. Is the company coverable under ESI?

I have read your thread that you posted earlier on another query. For the first question, I understood that I need to register the company under ESIC. For the second question, I am a bit confused after discussing with others. Some say ESIC is not applicable if the gross salary is above 15,000. However, I am aware that there are several components for the calculation of ESIC.

The employee's salary breakup is as follows:

- Basic: 6040
- HRA: 3020
- Conveyance: 800
- Medical Reimbursements: 1250
- Special Allowance: 3390

Total Gross: 15,100

Deductions:
- P.F. Employer Contribution: 725
- P.F. Employee Contribution: 725
- PF Additional Charges: 97

Net Salary: 13,553

Sir, I seek your guidance as in most discussions, the answer seems to be that I need to register him for ESIC.

Regards,
Ranjeeta

The employee's gross salary is above Rs. 15,000; therefore, no ESI is applicable to him. Additionally, since you do not have any employees with a gross salary below Rs. 15,000, the ESI Act is not applicable to you.

Though the opinion has been expressed by Sh. Koragaonkarji, a senior member as above, I have doubts about the nature of the following allowances:

(a) Medical Allowance;
(b) Special Allowance.

I would like to know whether the above two allowances are actually paid regularly in your wages by the employer regardless of actual expenses. Or are they paid at the close of the financial year, as some MNCs are doing in respect of Medical Allowance? Furthermore, what is Special Allowance, and how is it decided/calculated by management? Please indicate.

Please also inform whether the amounts of PF employers' Contribution Rs. 725/- and PF Special Allowance Rs. 97/- are included in Rs. 15,100/-, i.e., Gross wages of an employee as you have mentioned above.

Please check the total gross amount you have provided; it is incorrect and less than Rs. 15,000 per month. Thanks to Harsh Kumar ji for bringing this to my attention. I suggest that individuals ask specific questions in this forum while providing accurate information.

Clarification on Salary and CTC Concepts

It appears to me, Dear Ranjeeta ji, that the concepts of Salary and CTC - including Basic, Allowances, Earnings/Gross, Deductions from Earnings/Gross, Net Payable, and the amount received in hand - may not be clear to you.

I suggest you refer to the "Employee" definition in the ESI Act. Contract employees also come under the employee definition.

Regards,
Santosh

Dear Seniors,

I apologize for the mistake I made while writing down my query.

Medical and Special Allowance

1) Medical Allowance and Special Allowance are paid monthly with the salary.

2) Please also confirm whether the amounts of the PF employer's contribution of Rs. 725/- and PF Special Allowance of Rs. 97/- are included in the Rs. 15,100/-, i.e., the gross wages of an employee as you have mentioned above.

Answer: Currently, I have not added these two components (PF employer's contribution and PF special allowance) to his salary as it will lower his Gross Salary. Currently, my employer is paying the PF for all the employees, as the PF contribution from the employer's side is not added to the CTC of any of the old employees. This person was a newcomer, and going forward, my employer wants to include PF under the CTC of every employee (old employees after their appraisals) and for new ones to have it from now. If you both can guide me, it will be a great help for me.

Your answers below.

Answer for Point 1: So both allowances are part of the monthly salary and hence part of the Gross Salary. If the Gross is below ₹15,000/-, ESIC is applicable as per the components you provided. 6040 + 3020 + 800 + 1250 + 3390 = Total Gross ₹14,500. ESIC Applicable.

Answer for Point 2: Gross Salary + Employer's contribution (ESIC, PF, LWF, etc.) = CTC. Keep this equation in mind to make the payroll process easy. In the Monthly Payslip, you will indicate Gross Salary - Employee's contribution (ESIC, PF, LWF, etc.) = Net take-home Salary.

So, design the Employee's Package by keeping Gross salary in mind + Employer's Contribution to decide the monthly CTC.

Main Answer of Topic "Regarding ESIC Deduction":

1) If in your organization 10+ Employees are employed and all 10 are below ₹15,000 Gross, then ESIC is applicable. Once applied, you cannot remove ESIC applicability from your organization if Employee Strength goes down to 10 Nos.

2) Only if the employee's Gross salary reaches above the ceiling limit (₹15,000) after the end of the "Contribution period" (1st April - 30th Sept and 1st Oct to 31st March), you can remove the Employee out of ESIC coverage.

I hope this helps you.

Dear Ranjeeta, With reference to all the above posts, I would like to clarify your problem in the following way:

1) You have appointed a new employee on a monthly wage of Rs. 15,100 (with reference to your previous post). Now, an employee whose gross salary is Rs. 15,000 or less will be eligible for ESIC. In your case, if he is getting Rs. 15,100 per month, then he is not eligible for ESIC. Washing allowance is exempted from ESIC deduction.

2) The second query is that you have 33 employees, and none of them is receiving a salary of Rs. 15,000 or less. According to the nature of your organization, your firm falls under the Shop and Establishment Act. Therefore, as per the ESIC Act of 1948, there should be a minimum of 20 employees drawing gross wages of Rs. 15,000 or less for ESIC to be applicable to your firm.

Thank you.

Clarification on Software Development Units and ESIC Applicability

1. Sir, may I request Sh. Mahesh3328 to kindly explain how software development units are treated as "shops and establishments" and not "factories"? Is there any provision under the ESI Act, 1948, or are there any instructions issued by the said Department?

2. Further, I would also request Mahesh3328 to kindly elaborate on his views that "So as per the ESIC Act 1948, there should be a minimum of 20 employees drawing gross wages of 15,000 or less. So ESIC is not applicable to your firm."

3. I hope the above contributor will elaborate on his views with reference to the provisions of the ESI Act, 1948, and the rules/regulations framed thereunder. This is required so that I may update myself regarding the provisions of the above Act and compliance thereunder.

In the ruling in The Assistant Director, ESIC v. M/s Western Outdoor Interactive Pvt. Ltd. & Oth, while determining the applicability of the ESI Act to a software company, the Bombay High Court took a view that software development is a manufacturing process and the premises where computers are involved in such a manufacturing process is a factory for the purposes of the ESI Act.

However, this judgment is unlikely to affect the coverage of software establishments significantly since most of the States have already issued notifications covering various 'shops' and/or 'commercial establishments' within the scope of the ESI Act, and most IT/ITeS establishments are therefore already covered.

It seems you are either from Maharashtra, HP, or Assam and you are following the law in force or practiced in your State for shops and commercial establishments. Please note that ESI law in other States regarding its applicability to shops and commercial establishments is different. This issue has been discussed in this forum on a number of occasions.

As per my understanding, a Monthly Gross Salary of less than ₹15,000 or a CTC of less than ₹15,757 is covered under ESIC. In this case, where the gross salary is ₹15,100, ESIC shall not be applicable.

Regards,
Bharath

Dear Bharath ji, I read your response and confused myself as to whether I am making a conceptual mistake in law or what? From what source did you get this information, sir?

Let me intervene with my opinion that, first of all, the company is under ESI coverage because the number of employees exceeds 10/20. It is immaterial if all of your employees earn more than Rs 15,000 and, therefore, are not covered. However, for the purpose of establishment coverage, only the number of employees, not the salary, is taken into account. As such, your company is covered from the date on which your number of employees reached 10/20, as the case may be.

Now, coming to the question of employees' salary, I believe that the medical benefit is not an allowance but a reimbursement. Thus, it will not be considered as part of the salary at all. Therefore, you need to deduct Rs 1,250 from the gross salary (there is still a discrepancy of 600!). The remaining amount is the ESI qualifying salary. With the salary being Rs 13,850 (15,100 - 1,250), the employee is covered under ESI.

What are PF additional charges?

Regards,
Madhu.T.K

With due respect to you, Sir -

Clarification on Employee Coverage

What you say is not correct in Maharashtra, HP, and Assam as per my knowledge.

Medical Allowance and ESI

According to me, if medical allowance or reimbursement is paid along with salary every month, ESI will attract it. I may be wrong and subject to be corrected.

Regards