ESI Dilemma: Can We Deduct ESI if an Employee's Salary Drops Below 21000 Due to Absence?

X employee exceeded his wage above 21000/- in the month of April. Due to absence/LOP in June, his salary is below 21000/-. Can we deduct ESI from his salary in the following months? Kindly explain if any rule.

Dear Phani,

As there is a contribution made in the contribution cycle from January to June, you need to complete the payment cycle of ESIC contributions even though there is a midterm increase in salary. You can stop paying the contribution in the next cycle due to the increase in salary.

You may consider notional wages, i.e., the salary which he would have earned had he been employed throughout the month. Since that notional wage exceeds Rs. 21,000, you can exclude him from ESI. This principle applies to overtime wages as well. Overtime wages are excluded from deciding the coverage of an employee but are considered for the contribution of a covered employee. Therefore, if due to overtime the salary of an employee exceeds Rs. 21,000, he should not be excluded.

ESI contribution period varies from April to September and October to March. If during the period the salary increased and exceeded the limit, even at that time, the contribution has to be deducted from the employee's salary, and in the next period, the deduction would be nil.