ESI Contribution Confusion: Should Washing Allowance Be Excluded for Salaries Over 15000?

Dear Sir,

If the gross salary exceeds 15000, including washing allowance, do we need to include the employee for ESI contribution, excluding the washing allowance amount? Kindly suggest.

Thanks,
Prasath N

The definition of gross salary is all the emoluments that an employee receives. The distribution of the amount varies from one organization to another.

It is very clear in the Act that if the gross salary exceeds the ceiling of 15000/-, the employee will not receive benefits under the act and will automatically be excluded from the ESI.

Dear Prasant,

In my opinion, you cannot deduct ESIC on washing allowance.

Washing Allowance

First, the nature of payment needs to be decided, specifically how it is paid every month along with wages following an agreement or contract of service. Depending on its nature, the coverage of the employee will be determined. If it is not a conditional payment or cannot be withdrawn by the employer at any time, or if it is paid regularly as stated, it should be part of the wages as defined under the ESI Act. The coverage of the employee will accordingly be decided. He will be out of the coverage of the ESI Act since his salary will be above the wage limit of ₹15,000 per month, inclusive of the washing allowance being a part of payable wages. This should be ratified by the Appropriate ESI authority. This is what I feel should be your stand.

For ESI deduction, all emoluments paid in salary will be taken into consideration. In case the salary exceeds Rs. 15,000, the employee will come out of the ESI Act.

Guys, refer to the FAQs on the ESI website. If the washing allowance is reasonable, let's say Rs. 250 per month or so, it will mean that it is paid to 'defray' the expenses. As such, it will not be considered as wages as far as the ESI Act is concerned.

Coverage of the employee is based on paid or payable wages. If "washing Allowance" is not a conditional payment but is payable or paid every month as a condition of service under the contract of employment/agreement, it should be taken into consideration when calculating wages of Rs. 15,000 for coverage of the employees under the ESI Act.