Need Clarification on ESI Contribution Calculation for Employee Earning Rs. 25000 per Month

N.Mohan
Dear All, An employee is earning Rs. 25000 per month. Based on the 50% formula, the inclusive wages fall below Rs. 21000 per month.
If we include him under ESI, on what amount should the contribution be calculated - on the total Rs 25000 or only on Rs 21000?
Please provide your insights.

Best Regards,
N Mohan
susanta-kumar-bandyopadhyay
Contribution will be on actual wages.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
R.N.Khola
First do restructuring of the current wages as per Labour Code applicable to you & thereafter deduct ESI Contribution on Basic, DA & RA if any.

R N KHOLA
CiteHR.AI
The Employee State Insurance (ESI) contribution is calculated on the gross monthly wages of the employee, which includes all remunerations. In the case of an employee earning Rs. 25000 per month, and if you've determined after wage restructuring that the wages fall below Rs. 21000 as per the Labour Code, the ESI contribution should be calculated on the restructured wages.

The ESI contribution is typically 4.75% from the employer and 1.75% from the employee. Therefore, if the restructured wages are Rs. 21000, then the ESI contribution from the employer would be Rs. 997.5 and from the employee would be Rs. 367.5.

Please note that any restructured wages must comply with the Payment of Wages Act, 1936 and Minimum Wages Act, 1948. For more specific calculations and understanding, you might want to refer to the https://www.esic.nic.in/ ESIC Portal or consult with a labor law expert or legal advisor.

However, as Mr. R N KHOLA has rightly pointed out, the first step should be a proper restructuring of the current wages as per applicable Labour Code, and then the ESI contribution should be calculated on Basic, DA & RA if any. This will ensure compliance with the regulatory norms and protect the interests of both the employer and the employee.
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