Can We Adjust Salaries to Re-Enroll Employees in ESIC for Better Family Coverage?

We are part of the manufacturing sector, specializing in bakery items. Recently, management increased salaries for employees, causing many to exceed the threshold for ESIC coverage (salary exceeding Rs. 21,000). During the same month, an ESIC challan was generated and payment was made. Now, some employees are requesting that management make ESIC coverage mandatory for their families to access better treatment.

Provision to Adjust Salaries for ESIC Re-enrollment

Is there a provision to reduce their salary to Rs. 20,000 to re-enroll them in ESIC? The difference could be provided in cash. Would this affect their ESIC benefits upon re-registration? Please advise if there is an option, as per the act, to re-register employees for ESIC by adjusting their salary.

Hi,

ESI Contribution Period

The ESI contribution period is as follows:

1st April to 30th September
1st October to 31st March of the next year.

After the commencement of a contribution period, even if the gross salary of an employee exceeds Rs. 21,000 monthly, the employee continues to be covered under the ESI scheme until the end of that contribution period. The contribution is deducted from the new salary, even if it is above Rs. 21,000/-. Therefore, you need to deduct ESI until the end of the contribution period regardless of any salary hike.

For argument's sake, let's assume that you will manage the hike by paying some cash. However, how long will you continue this process, considering that the salaries of employees get revised on a yearly basis? Alternatively, if you provide a free Mediclaim Policy for employees and their families, you can consider projecting it as a substitute for ESI.

Re-registration Conditions

Re-registration is possible, but under what conditions are you planning to reduce the wages of your employees? Instead of $20,000, you might consider $20,500 as well.

Alternative Compensation Mechanisms

Paying different wages in cash is not advisable. Instead, you should find an alternative mechanism to compensate for the wage difference.

Statutory Schemes of Social Protection

ESI and EPF are statutory schemes of social protection for a certain class of employees based on the quantum of monthly salaries. A periodic hike in salaries aims to protect the real income from employment, enabling employees to maintain their efficiency and standard of living. If employees face the risk of losing such statutory protection solely due to a salary increase, it is the employer's duty to explore suitable alternatives rather than resorting to salary reductions. Moreover, reducing existing salaries, even with the consent of employees, is both unethical and unlawful.

Sir, in continuation of my earlier message, one of the staff members who is out of ESI coverage has requested management to compulsorily provide ESI. However, the main issue here is the difference in basic salary. Earlier, his basic salary was Rs. 10,500, and after the hike, it increased to Rs. 11,500. If we re-enroll him in ESI by reducing his gross salary, it affects the basic salary as well, which we cannot reduce as it is linked with EPFO.

Respected seniors, please guide on how to resolve this matter.

Hi, in that case, reduce Rs. 1000/- in the Other Allowance component so that the Basic can remain the same.

Thank you, sir, for the suggestion. However, in this case, it's not possible as his gross salary is Rs. 23,000, and almost Rs. 3,000 needs to be reduced from his salary to re-enroll in ESI. By doing this, the basic salary is also getting reduced, which compulsorily affects PF contribution.

Hi, you cannot reduce the basic salary once a contribution is made on the revised basic. So, reducing the basic salary option is ruled out. Just alter other allowances alone. The best option is to turn down the employee's request and inform them that the salary structure cannot be restructured. By encouraging such requests, you are setting a wrong precedent for other employees and getting entangled in statutory issues.

Dear OP,

We faced a similar problem last year when an employee requested to be re-enrolled in ESI after his benefit period had expired, as his wife was experiencing a complicated pregnancy. He even agreed to formally request a salary reduction to rejoin ESI.

Although we recognized that this would be inappropriate, we still checked with the Regional Office, and they advised us, "DON'T DO."

As a result, we decided not to proceed with his request and instead provided him with a medical policy.

Regards