ESI Contribution: What Are the Eligibility Criteria and How Can Salary Structure Help?

Dear friends, I need the detailed eligibility criteria for an employee for ESI contribution. Please suggest any special salary structure to safeguard from ESI authorities.

ESI is applicable to factories employing 10 workers and other establishments employing 20. Those drawing a salary not more than Rs 10,000 are covered. The rate of employees' contribution is 1.75% of the salary, and the employer's contribution is 4.75%. The salary is the sum paid in a month, and all payments that are paid at regular intervals of not exceeding two months are considered. Therefore, Travelling Allowance is excluded from the salary.

If you want to avoid ESI, you have to structure a salary above Rs 10,000. HOWEVER, WHEN THE SALARY CEILING IS REVISED BY THE GOVERNMENT, YOUR EMPLOYEES BECOME COVERED, AND AT THAT TIME, THE CONTRIBUTION PAYABLE WILL ALSO BE VERY HIGH.

For an employer, it is always desirable to have ESI coverage because many compensations payable by the employer under the Workmen's Compensation Act and Maternity Benefit Act are taken on by the ESI Corporation against this 4.75% contribution payable by the employer to the ESIC.

Regards,
Madhu.T.K

Dear Madhu,

Thanks for this valuable information. Could you please illustrate if ESI contribution is calculated on what part of the salary? I mean to say Basic, Gross Salary, Net Salary, or CTC. Could you also tell me what components of the salary are considered for ESIC calculation?

With best regards,
Manoj

One clarification is required. We have a few employees who were retained upon attaining the age of 58 years. We had issued a fresh letter to them for extension with a lump sum amount, with no statutory obligation for bonuses, LTA, etc. For PF, they withdrew their amount with no further obligation on the company. Will they be covered under ESIC?

Bibek

I want to learn about Payroll. Can anyone please tell me how we can calculate the PF and ESI? I have a little bit of knowledge about it. PF is calculated based on the Basic, and ESI is calculated on the gross salary.

Procedure to Calculate PF and ESI

But what is the procedure to calculate it? I have read about it, but I could not understand it properly. Please help me.

Thanks,
Rajwant

For PF, it is 12% from the employee and 13.61% from the employer. For ESI, the contribution is 1.75% from the employee and 4.75% from the employer on the gross salary, which should not exceed Rs. 15,000 for employees earning below that amount. Additionally, PT calculations should be done as per the State PT Act, and TDS deductions should be made as applicable.

Regards,
Raj

Dear Seniors, please help. We have 30+ employees in our company and are registered for PF but not for ESI.

ESIC Registration Requirement

1. Is it compulsory for us to register for ESIC? What will happen if not?

PF Eligibility for Fixed Salary Employees

2. One more question, we are paying a fixed salary to some employees like Basic 12000 + Conveyance 3000. Are they also eligible for PF?

Please advise.

Our total employee strength is 85, but the number of employees falling under the ESI slab is just 5. Please let me know whether these employees should be covered by ESI, or since only 5 employees fall under ESI, we may not need to cover them. Please reply at your earliest convenience.

I am forming a new sole proprietorship firm. I will hire engineers and supply them to companies on a contract basis. I have received the first order to supply 5 engineers for 1 year. I have not yet hired any engineers, but I will do so shortly.

ESI Registration Timing

Should I apply for ESI registration in advance before hiring anyone, or can I apply after hiring and supplying?

Regards,
Sanjay

Employment of at least 10 or more persons is required for any "shop" to be eligible for separate coverage and obtaining a separate code number under the ESI Act, 1948, and the rules/regulations framed thereunder.

However, if the principal employer to whom you want to supply engineers on a contract basis agrees, then you can ensure compliance regarding ESI using the code number of the principal employer itself.

I would like to mention that the current coverage limit under the ESI Act is Rs. 15,000 per month. Therefore, please consider this aspect when contemplating coverage under the aforementioned Act.

Thank you.

Hi all, we have a small-scale industry with 60 employees, and therefore, we want to apply for PF and ESIC in our company. How can we do this?

I am an insurance person (IP), and if my salary is more than $15,000, could you please help me with the following questions? Am I eligible to receive an amount for medical expenses if I am injured, and if so, what percentage of compensation would be provided?

If any organization or autonomous body does not deduct ESI from any employee out of 230, does any judicial act exist?

Hi,

Can you please share what decision you all are taking regarding ESI deduction in light of the threshold limit of 21,000 as per the draft rules that have been issued? I have heard that some organizations are deducting assuming that it may be applicable retrospectively.

Thank you.

Sir, amendments in the ESI (Central) Rules, 1950 are generally prospective and not retrospective.

Hi,

Thanks for the reply. As there was an amendment in the Bonus Act with retrospective effect, we have concerns for this reason. Is it valid to deduct contributions and refund them in the next salary if no retrospective amendment comes up? Please share.

Salary Structure Based on ESI Act

The following items will form part of the wage both under Section 2(9), i.e., for considering the employee for the purpose of coverage, and Section 2(22) of the ESI Act for the purpose of charging of contribution:

1. Matinee allowance paid to employees in cinema houses.
2. Shift allowance paid to employees who work on shift duty at odd shifts.
3. Location allowance paid, in addition to Dearness Allowance, to meet high house rent.
4. Compensatory allowance.
5. Cash handling allowance paid to cashiers.
6. Supervisory allowance.
7. Additional pay paid to training staff.
8. Charge allowance.
9. Steno/Typist allowance.
10. Plant allowance.
11. Honorarium for looking after the hospital/dispensary.
12. Computer allowance.
13. Gestetner/Photocopier/Printer allowance.
14. Personnel/Special allowance.
15. Machine allowance.
16. Canvassing allowance.
17. First-aid allowance.
18. Personnel allowance – Pay over and above the basic wage and Dearness Allowance for skill, efficiency, or past good records.
19. Area allowance - given to employees living in a particular area to meet the high cost of living in that area.
20. Ex gratia payment if payment is made within an interval of two months.

The following items will not form part of the wage either under Section 2(9) or under Section 2(22) of the ESI Act:

1. Payment made on account of un-availed leave at the time of discharge.
2. Commission on advertisement secured for newspapers, if not paid to the regular employee.
3. Fuel allowance/Petrol allowance.
4. Entertainment allowance.
5. Shoes allowance.
6. Payment made on account of gratuity on discharge/retirement.
7. Payment made on encashment of leave.

Please find the attachment for a clearer view on some allowances.

Regards

Salary Structure Based on ESI Act

The following items will form part of the wage both under Section 2(9), for considering the employee for the purpose of coverage, and Section 2(22) of the ESI Act for the purpose of charging of contribution:

1. Matinee allowance paid to employees in cinema houses.
2. Shift allowance paid to employees who work on shift duty at odd shifts.
3. Location allowance paid, in addition to Dearness Allowance, to meet high house rent.
4. Compensatory allowance.
5. Cash handling allowance paid to cashiers.
6. Supervisory allowance.
7. Additional pay paid to training staff.
8. Charge allowance.
9. Steno/Typist allowance.
10. Plant allowance.
11. Honorarium for looking after the hospital/dispensary.
12. Computer allowance.
13. Gestetner/Photocopier/Printer allowance.
14. Personnel/Special allowance.
15. Machine allowance.
16. Canvassing allowance.
17. First-aid allowance.
18. Personnel allowance – Pay over and above the basic wage and Dearness Allowance for skill, efficiency, or past good records.
19. Area allowance - given to employees living in a particular area to meet the high cost of living in that area.
20. Exgratia payment if payment is made within an interval of two months.

The following items will not form part of the wage either under Section 2(9) or under Section 2(22) of the ESI Act:

1. Payment made on account of un-availed leave at the time of discharge.
2. Commission on advertisement secured for newspapers, if not paid to the regular employee.
3. Fuel allowance/Petrol allowance.
4. Entertainment allowance.
5. Shoes allowance.
6. Payment made on account of gratuity on discharge/retirement.
7. Payment made on encashment of leave.

Please find the attachment for a clearer view on some allowances.

Regards

I am confused, Harsh. If I have a gross salary of $15,000 and the number of people employed is less than 10, are we still eligible for ESI.

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Hi Harsh,

I have a question regarding eligibility for ESI. If my gross salary is $15,000 and the number of people employed is less than 10, would we still qualify for ESI coverage? I appreciate your assistance in clarifying this matter.

Thank you.

Once covered, there is no exit in ESIC and EPF for establishments; they have to contribute even up to single employee.