Confused About ESIC and EPF Deductions: Does a Salary of 14934 Fall Under EPF?

Dear Professionals,

I have a confusion since ESIC ceiling limit has been raised to 21000. We have an employee with a gross salary of 15200 per month, which is also his basic salary. After deducting his part in ESIC contribution of 1.75%, his net salary becomes 14934 per month.

Now, does his basic salary become 14934 per month and fall under EPF? Kindly clarify my doubts.

Thank you.

You have mentioned that his Gross Salary is Rs. 15,200/-. Yes, he falls under ESI w.e.f. 1st January 2017 since the ESI threshold limit has been increased. ESI dues calculation is applicable on Gross Salary. ESI is a deduction that affects the In-Hand pay and does not impact Gross Payment. You have not mentioned the Pay Structure; only the gross salary is mentioned. It appears that you do not have any salary structure as such. To avoid ESI & EPF deductions, you have kept his salary above the threshold limit of Rs. 15,000/-.

Now, regarding EPF, EPF dues calculation is based on Basic + DA + Food allowance. For the purpose of membership entitlement, these three amounts [monthly rate] are considered. Please note that the EPF threshold limit is also expected to increase to Rs. 21,000 or Rs. 25,000 anytime in the near future. So, first, establish the proper pay structure under appropriate guidance.

Regards

Thank you, Mr. Pramod.

I want to clarify that we did not bifurcate this salary. This is the candidates' basic salary and gross earnings as well.

So, my question is, will 14934 be considered his basic salary, or will 15200 remain? Also, does this put him under EPF contribution as well?

Please guide. Pardon me if I have not understood well.

Thank you.

Dear all,

Please note that the rate of salary/wage (not after deductions) is considered for coverage of ESI and EPF. In your case, if the rate of pay (Basic and DA) is beyond Rs. 15,000/-, he is at present exempted from the EPF preview subject to fulfillment of a few conditions.

P.K. Sharma

Understanding Basic and Gross Salary

You need to understand the concept of basic and gross salary. Basic salary (for PF) and gross salary (for ESIC) are the salaries you have contracted/agreed to pay to an employee every month if they have worked on all days other than approved leave, holidays, and weekly off. It does not reduce for any deductions you are required to make, whether for PF, ESIC, income tax, leave without pay, profession tax, etc. So, your gross/basic for the employee remains at ₹15,200 and therefore is out of the scope of PF contributions.

Also, please remember that making a complicated salary structure is not a requirement, and there is nothing in the law that requires you to break up the salary into various categories. If you have people who are under income tax, then only you would need to consider a structure that will make it tax-efficient for the employee. Again, some people use salary structures to reduce their PF contribution, but in the end, the amount is rarely significant.

Regards,
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