Hi, My question is regarding ESI. The co. needs to go for ESI if the take home salary of the employee is upto or below 21K or the gross salary is below 21K?
From India, Hyderabad
Acknowledge(0)
Amend(0)
1From India, Hyderabad
Acknowledge(0)Amend(0)
What is take-home salary? It is the salary after deductions for contributions towards ESI, PF, etc. For all coverage, the gross salary should be taken into account. Therefore, all employees whose salaries do not exceed Rs 21,000 should be registered under ESI. There are two allowances that are excluded from the salary: traveling allowance and washing allowance. Of these, the washing allowance is permitted to be excluded from wages only if the employees have been supplied with a uniform.
From India, Kannur
Acknowledge(0)Amend(0)
From India, Kannur
Acknowledge(0)Amend(0)
Thank you, Madhu, for the reply. We are a private limited company in Hyderabad.
Monthly Compensation Details:
Basic: 9000
HRA: 3600
Transport Allowance: 1600
Medical Allowance: 1250
Special Allowance: 970
Conveyance Allowance: 5000
Gross: 21420
Employee Deductions:
Employee Provident Fund: 1080
PT: 200
Employer Provident Fund: 1080
Net Pay: 20140
Fixed Component: 22500
Therefore, the gross amount comes to 21420, and the take-home pay amounts to 20140.
From India, Hyderabad
Acknowledge(0)Amend(0)
Monthly Compensation Details:
Basic: 9000
HRA: 3600
Transport Allowance: 1600
Medical Allowance: 1250
Special Allowance: 970
Conveyance Allowance: 5000
Gross: 21420
Employee Deductions:
Employee Provident Fund: 1080
PT: 200
Employer Provident Fund: 1080
Net Pay: 20140
Fixed Component: 22500
Therefore, the gross amount comes to 21420, and the take-home pay amounts to 20140.
From India, Hyderabad
Acknowledge(0)Amend(0)
I am sorry to interfere with your pay structure. There are some factual errors in it. You have a component called Conveyance allowance. At the same time, you are giving Transport allowance also. Both signify the same, i.e., traveling or conveyance allowance. Following the Supreme Court decision in Employees State Insurance Vs M/S.Texmo Industries, the conveyance or traveling allowance is excluded from the scope of wages both for coverage as well as for contribution. Therefore, the ESI qualifying salary should be gross salary excluding traveling/conveyance allowance. You have to first decide which one is part of the salary and which should be excluded from it. If the amount after deducting the conveyance/traveling allowance is not more than Rs 21,000, the employee would come under the scope of ESI.
Now, your PF qualifying salary is only Rs 9,000, whereas you have allowances like Transport allowance, Conveyance allowance, medical allowance, and special allowance excluded from the scope of PF qualifying wages. PF is payable on gross salary. HRA may be excluded if it is a compensatory allowance paid to those employees who reside in rented houses. True, as the HRA is excluded from the scope of wages, it can be excluded straight away. But other allowances will certainly qualify for PF. Medical allowance paid monthly is part of wages. Similarly, if special allowance is paid to all the employees without any consideration about any special skill to be used by the employee to perform his duties or tasks, then it is part of the salary only. Hence the PF qualifying salary in the above salary should be Rs 17,820 (Rs 21,420 - 3,600) whereas you have taken only Rs 9,000. As per EPF & MP Act, since the employer is not liable to contribute PF on a salary higher than Rs 15,000, you need not pay it on Rs 17,820 but can restrict the contribution to Rs 1,800, i.e., 12% of Rs 15,000. Any amount less than this would attract penal interests and damages. Also, if a notice is issued, you will have to pay the difference amount of both employees' share as well as the employer's share with a retrospective date, and you would not be able to collect the employees' share so remitted from the employees.
At the same time, if an employee joins your organization with the same pay structure and if it is his first employment or if he has not been a member of PF in the past, he could be excluded from the coverage of EPF. For those who are currently covered, you should continue to contribute.
From India, Kannur
Acknowledge(0)Amend(0)
Now, your PF qualifying salary is only Rs 9,000, whereas you have allowances like Transport allowance, Conveyance allowance, medical allowance, and special allowance excluded from the scope of PF qualifying wages. PF is payable on gross salary. HRA may be excluded if it is a compensatory allowance paid to those employees who reside in rented houses. True, as the HRA is excluded from the scope of wages, it can be excluded straight away. But other allowances will certainly qualify for PF. Medical allowance paid monthly is part of wages. Similarly, if special allowance is paid to all the employees without any consideration about any special skill to be used by the employee to perform his duties or tasks, then it is part of the salary only. Hence the PF qualifying salary in the above salary should be Rs 17,820 (Rs 21,420 - 3,600) whereas you have taken only Rs 9,000. As per EPF & MP Act, since the employer is not liable to contribute PF on a salary higher than Rs 15,000, you need not pay it on Rs 17,820 but can restrict the contribution to Rs 1,800, i.e., 12% of Rs 15,000. Any amount less than this would attract penal interests and damages. Also, if a notice is issued, you will have to pay the difference amount of both employees' share as well as the employer's share with a retrospective date, and you would not be able to collect the employees' share so remitted from the employees.
At the same time, if an employee joins your organization with the same pay structure and if it is his first employment or if he has not been a member of PF in the past, he could be excluded from the coverage of EPF. For those who are currently covered, you should continue to contribute.
From India, Kannur
Acknowledge(0)Amend(0)Looking for something specific? - Join & Be Part Of Our Community and get connected with the right people who can help. Our AI-powered platform provides real-time fact-checking, peer-reviewed insights, and a vast historical knowledge base to support your search.