Does Overtime Affect ESI Deductions? Seeking Clarity on Salary and ESI Limits

Query Regarding ESI and Overtime

This is a query that was recently raised in my organization. I am slightly confused about whether overtime (if paid with salary) comes under the purview of ESI. For example, an employee's gross salary is 21,000, i.e., the amount to be deducted from the employee is 377. However, after adding the amount of overtime, it rises to Rs 24,000. Now, my questions are:

1. Will the amount of Rs 377 be deducted after adding the overtime?
2. Will the amount of ESI increase to Rs 420?
3. Will the deduction for ESI be waived out due to the increase in the ESI limit?

I request all of you to provide a strong answer.

Regards, RATNADEEP KAR
Manager - HR
[Phone Number Removed For Privacy-Reasons]

Overtime and ESIC Deductions

Overtime is considered as wages under the ESIC Act under Sec. 2(22). (Refer: Wages | Employee's State Insurance Corporation, Ministry of Labour & Employment, Government of India) Therefore, you will have to deduct Rs. 420 from the gross salary of Rs. 24,000.

ESIC will be deducted on the full amount of Rs. 24,000 as per the usual guidelines of ESIC. There will be no waiver on the amount as it has increased above Rs. 21,000.

For example, if my salary is Rs. 30,000, due to certain deductions/absenteeism, loans, if my salary becomes Rs. 15,000, I would not be suddenly covered under ESIC. Similarly, for ESIC, the normal gross salary of a person is considered for coverage. Salary may increase/decrease each month for employees based on the receipt of overtime, incentives, absenteeism. However, the stipulated structure (basic, DA, HRA, medical, conveyance, special allowance) remains constant.

That is, for a person with a salary of Rs. 21,000 or below, if no absenteeism, bonus, or overtime is present, then his salary will always remain Rs. 21,000. So, Rs. 21,000 should be the wage decided for coverage.

Sir, under the provisions of the ESI Act, 1948, overtime has a special status. OT is wages, and contributions are payable, but the amount of OT cannot be considered to examine the exemption of any employee under the said Act. The reason being, the amount of overtime is not permanent and changes every month. Please see the definitions of the terms "wages" and "employee" under the said Act.