How Should Employers Handle ESIC Contribution Changes Without Reducing Employee Pay?

Increase in ESIC Limit: Implications for Employers

As all of us are aware, the ESIC limit has increased to Rs 21,000/- effective from January 17, replacing the previous limit of Rs 15,000/-. This change presents a situation where some employers may not want to increase the employee's CTC by paying the employer's contribution to ESIC. Instead, they are adjusting with the existing CTC of the employee by decreasing their net pay, which most employees dislike. Therefore, the increase in the ESIC limit from Rs 15,000 to Rs 21,000 will not affect their costs.

Legal Considerations of ESIC Contributions

Is this the right way to make contributions? Is it legally acceptable? I have reviewed the ESIC Act and the Notification, where the ESIC Act under the Contributions Clause No. 38 to 43 states that the employer's contribution cannot be reduced from employees' wages.

I am looking for advice and views from industry seniors.

Warm Regards,

Praveen Devadiga

Dear member, the concept of CTC is not recognized or defined in the ESI Act, 1948, and the rules/regulations framed thereunder. You must understand the definition of the term "wages" as defined under section 2(22) of the said Act.

The employer cannot deduct the contribution of the employers' share from the wages of the employees, and it is an offense punishable under section 85(b) of the said Act. Please also see section 40(3) of the said Act.