Salary Deductions for Insurance: Is It Fair for Employers to Do This Monthly?

Respected All, can employers deduct insurance premiums monthly from employees' salaries?

Employer Deductions from Salary

An employer can deduct only the employee's contribution from the salary of an employee. The employer can only deduct the employer's part from an employee if the selection is done on a CTC basis.

Regards, Sanjay Tiwari

When you ask a question, you need to provide all details and the surrounding circumstances. Details to Include: So, what type of insurance, what is the amount, purpose, whether it was in the employment contract, or voluntary. And what is your role in it? Why are you asking the question?

If the insurance is a salary savings scheme (usually life insurance) and the employee has been authorized by the employer to deduct from the salary, the employer can deduct it.

Organizational Policy for Mediclaim and Group Personal Accident Insurance
If there is any organizational policy for Mediclaim, Group Personal Accident, etc., in those cases, it cannot be deducted from salary in general; rather, the premium for those insurances is to be paid by the employer.

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
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http://www.usdhrs.in - USD HR Solutions – To Strive towards excellence with effort and integrity

Under Section 7 of the Payment of Wages Act, 1936

"(k) deductions, made with the written authorization of the person employed for payment of any premium on his life insurance policy to the Life Insurance Corporation of India established under the Life Insurance Corporation Act,"

In most organizations, many employees do not fall under the ambit of the ESI Act due to coverage limitations for salaries up to Rs. 21,000 per month. However, these employees still desire protection against medical expenses in the event of any emergencies or accidents occurring during their period of employment, whether on duty or not.

Group Mediclaim and Personal Accident Policies

In such cases, if the organization secures a Group Mediclaim policy, the premium is much less than what would otherwise be charged to an individual employee. Additionally, organizations typically obtain a group personal accident policy that includes hospitalization benefits, whether named or unnamed, especially in cases where the attrition rate is higher than normal.

Employers have the right to deduct the premium amount from the employee's salary, usually by dividing the share of the premium by 12.

This approach ensures that the employee is covered by both Mediclaim and Personal Accident policies with hospitalization benefits at a reduced premium, payable through monthly installments. The organization acts as a facilitating agent between the insurer and the employee.

Regards, Jawaharlal Moondra
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If the employee is not covered under ESIC, then those employees will be covered under the Employee Compensation Act (EC Act). There are insurances available in lieu of the EC Act. This is unnamed insurance and a statutory need. Therefore, the premium for insurance must be borne by the PE; otherwise, it will be illegal.

Mediclaim and GPA Insurance

Now, come to Mediclaim (hospitalization) & GPA (Group Personal Accident Insurance) where both are extra-legal. There are organizations where employees/unions are interested in covering parents for Mediclaim by paying a portion of the premium paid by the employees. Usually, premiums for extra-legal items are paid by the PE.

If there is consent by the employees/unions' agreement, then it may be possible to deduct from the salary for paying the premium. I have never come across any organization where employees are bearing the cost of the entire premium for extra-legal matters, and the employer is not paying anything. India has huge diversity, and I am also learning new things every day, being very close to 70 years.

Regards, S K Bandyopadhyay

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USD HR Solutions – To strive towards excellence with effort and integrity