Under the earlier rules, the ESI was contributed on gross salary. The only components which could be excluded were Travelling allowance and washing allowance (on condition that the employer has provided Uniform to the workers). Under the Social Security Code, only the Basic wages and Dearness allowance will qualify for ESI. Yes, if the employee’s salary includes allowances like house rent, amount paid for the special skill put in for the work or special allowance, commission, wages for overtime work performed, conveyance or travelling allowance or any amount payable following a settlement or award by Tribunals, bonus and contributions payable by the employer towards EPF, then that amount will also be taken for deciding the amount payable to ESI scheme. If the total amount payable as allowances listed above exceeds 50% of the total salary including Basic and DA, then the amount which exceeds 50% should be added to Basic and DA portion in order to decide the amount payable as ESI.
In respect of employees whose allowances do not exceed 50% of the total remuneration, there will not be any change. But when this principle is applied, many employees who are under the scope of ESI will come out of it. A simple working would make it more clear. For details please follow the link:
https://madhu-t-k.blogspot.com/2025/12/esi-qualifying-wages-under-social.html
From India, Kannur
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4667In respect of employees whose allowances do not exceed 50% of the total remuneration, there will not be any change. But when this principle is applied, many employees who are under the scope of ESI will come out of it. A simple working would make it more clear. For details please follow the link:
https://madhu-t-k.blogspot.com/2025/12/esi-qualifying-wages-under-social.html
From India, Kannur
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The changes in the ESI qualifying wages under the new Social Security Code can have significant implications for both employees and employers. It's important to understand these changes to ensure compliance and to manage employee benefits effectively.
Legally, under the new Social Security Code, only Basic wages and Dearness allowance are considered for ESI contributions. Other allowances such as house rent, special skill allowances, commissions, overtime wages, and others will also be considered if they exceed 50% of the total salary (including Basic and DA). This is a significant shift from the previous regulations where ESI contributions were based on gross salary.
Here's a step-by-step action plan to manage these changes:
1. Review your employees' salary structures to identify those whose allowances exceed 50% of their total remuneration.
2. For these employees, add the amount exceeding 50% to the Basic and DA portion to calculate the ESI payable.
3. Communicate these changes to the affected employees and explain how it impacts their ESI contributions and benefits.
4. Update your payroll systems to ensure accurate calculation and deduction of ESI contributions under the new rules.
5. Monitor any further updates or clarifications on the Social Security Code to stay compliant.
Remember, while these changes may reduce the ESI contributions for some employees, it may also result in lower ESI benefits. It's crucial to manage this transition carefully to maintain employee trust and satisfaction. Always ensure transparent communication with your employees about these changes and how they are implemented.
From India, Gurugram
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Legally, under the new Social Security Code, only Basic wages and Dearness allowance are considered for ESI contributions. Other allowances such as house rent, special skill allowances, commissions, overtime wages, and others will also be considered if they exceed 50% of the total salary (including Basic and DA). This is a significant shift from the previous regulations where ESI contributions were based on gross salary.
Here's a step-by-step action plan to manage these changes:
1. Review your employees' salary structures to identify those whose allowances exceed 50% of their total remuneration.
2. For these employees, add the amount exceeding 50% to the Basic and DA portion to calculate the ESI payable.
3. Communicate these changes to the affected employees and explain how it impacts their ESI contributions and benefits.
4. Update your payroll systems to ensure accurate calculation and deduction of ESI contributions under the new rules.
5. Monitor any further updates or clarifications on the Social Security Code to stay compliant.
Remember, while these changes may reduce the ESI contributions for some employees, it may also result in lower ESI benefits. It's crucial to manage this transition carefully to maintain employee trust and satisfaction. Always ensure transparent communication with your employees about these changes and how they are implemented.
From India, Gurugram
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ESI has already in their examples dated 11.12.2025 explained the method of calculating ESI Wages.
There is a term used as Total monthly Remuneration (TR) which is nothing but revised CTC excluding Gratuity, Employer contribution ESI, contribution to any insurance - Insurance in lieu of EDLI, EC, group LIC etc from total CTC.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
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There is a term used as Total monthly Remuneration (TR) which is nothing but revised CTC excluding Gratuity, Employer contribution ESI, contribution to any insurance - Insurance in lieu of EDLI, EC, group LIC etc from total CTC.
S K Bandyopadhyay
CEO
USD HR Solutions
98310 81531
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(Fact Checked)-Your explanation of Total monthly Remuneration (TR) in the context of ESI calculation is accurate and helpful. Keep sharing your knowledge! (1 Acknowledge point)
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Sir,
Current ceiling limit is 21,000 of gross. Then will it be considered for Part A and Part B or only part A. As the OT is variable and bonus is yearly benefit then how it will be considered for ESIC.
Similarly, earlier maternity benefit was calculated on gross. Now as per new code, will the MB benefit decrease.
Please enlighten.
From India, Bhubaneswar
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Current ceiling limit is 21,000 of gross. Then will it be considered for Part A and Part B or only part A. As the OT is variable and bonus is yearly benefit then how it will be considered for ESIC.
Similarly, earlier maternity benefit was calculated on gross. Now as per new code, will the MB benefit decrease.
Please enlighten.
From India, Bhubaneswar
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(Fact Checked)-Your understanding is correct. The ESI contribution is calculated on gross salary up to ₹21,000. OT and bonus are considered. Maternity benefits won't decrease under the new code. (1 Acknowledge point)
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There is no concept of Part- A and B. It is total CTC minus the items as mentioned earlier. Every month it has to be calculated as OT payment is variable. Yearly Bonus to be divided by 12 to get monthly value. MB will decrease as it will be in the basis of Wages instead monthly gross.
S K Bandyopadhyay ( Howrah, WB)
CEO
USD HR Solutions
98310 81531
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S K Bandyopadhyay ( Howrah, WB)
CEO
USD HR Solutions
98310 81531
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(Fact Checked)-Your explanation of ESI calculations is accurate. Remember, the new Social Security Code includes more components in the wage definition. Keep sharing your knowledge! (1 Acknowledge point)
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Part A and Part B are used to simplify the definition of wages. The part A represents the actual and fixed wages and the part B is a combination of so many allowances and statutory payments to be made by the employer. As explained by me in the writeup, the threat is that every month the HR should calculate Part B and decide how much should he deduct as ESI. Moreover, many of the eligible employees whose fixed part of wages is within the threshold limit of Rs 21000 will go out of the scheme if he works longer hours and earns better incentives and commission.
Regarding the month in which the employee once covered can be excluded, the ESI has to formulate regulations.
From India, Kannur
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Regarding the month in which the employee once covered can be excluded, the ESI has to formulate regulations.
From India, Kannur
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(Fact Checked)-Your explanation of Parts A and B is accurate and your concerns about the ESI calculation are valid. The ESI indeed needs to formulate regulations for exclusions. (1 Acknowledge point)
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Sub Change in ESI compliance subsequent to change in definition of term
“Wages” after implementation of the Code on Social Security’2020
Kind attention is invited to the fact of pan-India implementation of the four
Labour Codes including the Code on Wages, 2019, the Industrial Relations Code, 2020,
the Code on Social Security, 2020 (CoSS) and the Occupational Safety, Health and
Working Conditions Code, 2020 with effect from 21st November 2025, rationalising
29 existing labour laws.
2.2
Subsequent to implementation of the CoSS 2020, the definition of term “Wages”
has been redefined. The employers are required to change the manner of compliance of
the ESI Scheme and amount of contribution thereof in accordance with the amended
provisions. The definition of “Wages” envisaged in subsection 88 of section 2 is
reproduced below for reference: -
"Wages" means all remuneration, whether by way of salaries, allowances or otherwise,
expressed in terms of money or capable of being so expressed which would, if the terms
of employment, express or implied, were fulfilled, be payable to a person employed in
respect of his employment or of work done in such employment, and includes,—
(a) basic pay;
(b) dearness allowance; and
(c) retaining allowance, if any,
but does not include—
a) any bonus payable under any law for the time being in force, which does not form
39/Surat/CoverageClarification/CoSS2020/2025/IC-2
I/3373491/2025
part of the remuneration payable under the terms of employment;
b) the value of any house-accommodation, or of the supply of light, water, medical
attendance or other amenity or of any service excluded from the computation of
wages by a general or special order of the appropriate Government;
c) any contribution paid by the employer to any pension or provident fund, and the
interest which may have accrued thereon;
d) any conveyance allowance or the value of any travelling concession;
e) any sum paid to the employed person to defray special expenses entailed on him
by the nature of his employment;
f)
house rent allowance;
g) remuneration payable under any award or settlement between the parties or order
of a court or Tribunal;
h) any overtime allowance;
i)
j)
any commission payable to the employee;
any gratuity payable on the termination of employment;
k) any retrenchment compensation or other retirement benefit payable to the
employee or any ex-gratia payment made to him on the termination of employment,
under any law for the time being in force:
Provided that for calculating the wages under this clause, if payments made by the
employer to the employee under sub-clauses (a) to (i) exceeds one-half, or such other per
cent. as may be notified by the Central Government, of the all remuneration calculated
under this clause, the amount which exceeds such one-half, or the per cent. so notified,
shall be deemed as remuneration and shall be accordingly added in wages under this
clause:
Provided further that for the purpose of equal wages to all genders and for the purpose of
payment of wages, the emoluments specified in sub-clauses (d), (f), (g) and (h) shall be
taken for computation of wage.
Explanation—Where an employee is given in lieu of the whole or part of the wages payable
to him, any remuneration in kind by his employer, the value of such remuneration in kind
which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed
to form part of the wages of such employee;
3.
The above change in definition impacts the coverability of the employee and the
amount of contribution payable. An illustrative status of compliance in different
scenarios is given below for assistance: -
Case
Basic
Pay
DA+RA
Other
Allow.
Gross
Salary
Coverability and
Contribution as
per ESI Act
Coverability and contribution as per
CoSS
Yes/
No
Contri
@ 4%
50 % of
Gross
OA in
Excess
of 50%
Yes/
No
Contri
@ 4%
A B C D D F G H I J K
1
21500
0
0
21500
No
0
10750
0
No
2 16000
2000
8000
26000
0
No 0 13000 0 Yes
720
3
18000
2000 30000 50000 No
0
25000
5000
No
4 15000
3000
6000
24000
0
No 0 12000 0 Yes
720
5 20000 0
20000
40000
No 0 20000 0 Yes
6 15000 0
6000
21000
800
Yes 8
40 10
500 0 Yes
600
4.
In light of the above-mentioned provisions, the executive authorities of the
factories/establishment covered/coverable under ESIC are advised to bring-in
necessary changes in their record keeping for correct compliance of the Scheme.
5.
It is also reminded that the SPREE-2025 scheme is ending shortly on
31.12.2025. The employers shall be entitled for immunity from
retrospective liabilities in respect of employees registered during this
SPREE period. It is strongly recommended to take advantage of this
limited-time opportunity and complete the online registration of all the
coverable employees without any further delay.
From: Sanjay Tiwari
9408005777
From India, Ahmedabad
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“Wages” after implementation of the Code on Social Security’2020
Kind attention is invited to the fact of pan-India implementation of the four
Labour Codes including the Code on Wages, 2019, the Industrial Relations Code, 2020,
the Code on Social Security, 2020 (CoSS) and the Occupational Safety, Health and
Working Conditions Code, 2020 with effect from 21st November 2025, rationalising
29 existing labour laws.
2.2
Subsequent to implementation of the CoSS 2020, the definition of term “Wages”
has been redefined. The employers are required to change the manner of compliance of
the ESI Scheme and amount of contribution thereof in accordance with the amended
provisions. The definition of “Wages” envisaged in subsection 88 of section 2 is
reproduced below for reference: -
"Wages" means all remuneration, whether by way of salaries, allowances or otherwise,
expressed in terms of money or capable of being so expressed which would, if the terms
of employment, express or implied, were fulfilled, be payable to a person employed in
respect of his employment or of work done in such employment, and includes,—
(a) basic pay;
(b) dearness allowance; and
(c) retaining allowance, if any,
but does not include—
a) any bonus payable under any law for the time being in force, which does not form
39/Surat/CoverageClarification/CoSS2020/2025/IC-2
I/3373491/2025
part of the remuneration payable under the terms of employment;
b) the value of any house-accommodation, or of the supply of light, water, medical
attendance or other amenity or of any service excluded from the computation of
wages by a general or special order of the appropriate Government;
c) any contribution paid by the employer to any pension or provident fund, and the
interest which may have accrued thereon;
d) any conveyance allowance or the value of any travelling concession;
e) any sum paid to the employed person to defray special expenses entailed on him
by the nature of his employment;
f)
house rent allowance;
g) remuneration payable under any award or settlement between the parties or order
of a court or Tribunal;
h) any overtime allowance;
i)
j)
any commission payable to the employee;
any gratuity payable on the termination of employment;
k) any retrenchment compensation or other retirement benefit payable to the
employee or any ex-gratia payment made to him on the termination of employment,
under any law for the time being in force:
Provided that for calculating the wages under this clause, if payments made by the
employer to the employee under sub-clauses (a) to (i) exceeds one-half, or such other per
cent. as may be notified by the Central Government, of the all remuneration calculated
under this clause, the amount which exceeds such one-half, or the per cent. so notified,
shall be deemed as remuneration and shall be accordingly added in wages under this
clause:
Provided further that for the purpose of equal wages to all genders and for the purpose of
payment of wages, the emoluments specified in sub-clauses (d), (f), (g) and (h) shall be
taken for computation of wage.
Explanation—Where an employee is given in lieu of the whole or part of the wages payable
to him, any remuneration in kind by his employer, the value of such remuneration in kind
which does not exceed fifteen per cent. of the total wages payable to him, shall be deemed
to form part of the wages of such employee;
3.
The above change in definition impacts the coverability of the employee and the
amount of contribution payable. An illustrative status of compliance in different
scenarios is given below for assistance: -
Case
Basic
Pay
DA+RA
Other
Allow.
Gross
Salary
Coverability and
Contribution as
per ESI Act
Coverability and contribution as per
CoSS
Yes/
No
Contri
@ 4%
50 % of
Gross
OA in
Excess
of 50%
Yes/
No
Contri
@ 4%
A B C D D F G H I J K
1
21500
0
0
21500
No
0
10750
0
No
2 16000
2000
8000
26000
0
No 0 13000 0 Yes
720
3
18000
2000 30000 50000 No
0
25000
5000
No
4 15000
3000
6000
24000
0
No 0 12000 0 Yes
720
5 20000 0
20000
40000
No 0 20000 0 Yes
6 15000 0
6000
21000
800
Yes 8
40 10
500 0 Yes
600
4.
In light of the above-mentioned provisions, the executive authorities of the
factories/establishment covered/coverable under ESIC are advised to bring-in
necessary changes in their record keeping for correct compliance of the Scheme.
5.
It is also reminded that the SPREE-2025 scheme is ending shortly on
31.12.2025. The employers shall be entitled for immunity from
retrospective liabilities in respect of employees registered during this
SPREE period. It is strongly recommended to take advantage of this
limited-time opportunity and complete the online registration of all the
coverable employees without any further delay.
From: Sanjay Tiwari
9408005777
From India, Ahmedabad
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(Fact Checked)-Your explanation of the changes in ESI compliance due to the implementation of the Code on Social Security 2020 is accurate and comprehensive. Great job! (1 Acknowledge point)
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Changes in the Applicability and Coverage of ESI Scheme under the Code on Social Security.doc
BRIEF ARTICLE ON DRAFT SOCIAL SECURITY CODE-2018.pdf
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