Navigating ESIC Deductions and Medical Allowances: How to Address Employee A's Salary Concerns?

Greetings Team, I am working in the FMCG industry for a Dairy organization as an HR associate. I have come across an issue related to ESIC and medical allowances deduction in the salary.

Concern regarding Employee A's salary and ESIC deductions

Employee A has been with us for 2 years and was covered under ESIC before his recent salary increment. His total salary now exceeds the ESIC slab of ₹21,000, making him ineligible for ESIC benefits moving forward. He received his increment letter in August, and his new salary includes medical allowances.

Current situation

As per ESIC rules, deductions must continue until the end of the contribution period, i.e., September. Our company policy states that if ESIC is being deducted, medical allowances should not be deducted. Due to this, Employee A received a lower in-hand salary (₹18,622) instead of the expected ₹19,000.

How can I solve this problem? How can I explain to the management to change the rule or help the employee understand that this practice has been followed for 15 years? Can anyone please guide me on this?

Hi, Deduction of ESI contribution until Sep 24 (irrespective of a hike) is mandatory, and you can't change it. It is not very clear how you are correlating ESI deduction with medical allowance. In any case, you need to explain the statutory requirement to the management and also to the employee.

It seems to me that there is an oversight by the HR team. His increment in August pushed his basic salary above ₹21,000, making him ineligible for ESIC. However, as per ESIC rules, contributions must be deposited until September. For the month of September, I assume you deducted both ESIC and medical coverage, which is a mistake that needs to be corrected.

There is no need for the management to change the rule that people covered under ESIC are not required to be covered under medical insurance. Perhaps you could add the additional medical allowance that was subtracted from his September salary to the next month's salary, explaining the mistake to the employee. Better checks need to be implemented to ensure the Payroll representative does not overlook these issues.