ESI is usally calculateed on the Gross Pay of the employee. The Employee side deduction would be 1.75% & the employer Contribution would be 4.75%. But for employees whose gross pay is < 2000 the employee should not be deducted for ESI. Hope this information is clear for you. If you have further doubts mail to 
From India, Madras
From India, Madras
1
esi calculated in gross salary ie while processing contribution made to earned gross salary. all others are same as said before. regards shunmugam
From India, Madras
From India, Madras
Yes Deduction is on Basia+DA + all allownace except washing allowances and food coupons if given
From India, Bangalore
From India, Bangalore
Foloowing components are not taken while calculating ESI
1) Washing Allowance
2) Conveyance Allowance
3) Contribution paid by the employer towards pF/ESi
4) Gratuity
5)Production incentive
6) Encashment of leave
7)Any travelling allowance
8) Meal food allowance
9) Entertainment Allowance
10) News paper Allo.
11)Bonus
12) re-imbursible school fees
Regards
Prakash Geprge
1) Washing Allowance
2) Conveyance Allowance
3) Contribution paid by the employer towards pF/ESi
4) Gratuity
5)Production incentive
6) Encashment of leave
7)Any travelling allowance
8) Meal food allowance
9) Entertainment Allowance
10) News paper Allo.
11)Bonus
12) re-imbursible school fees
Regards
Prakash Geprge
Dear Sanju,:)
please go to www.esic.nic.in website
regards
Sarath Chandran
9884876574
Chennai
From India, Madras
please go to www.esic.nic.in website
regards
Sarath Chandran
9884876574
Chennai
From India, Madras
ESI contribution need to be paid on "Wage" paid or payable to employee during a wage period. Wage has been defined as all payment made in cash as per contract of employment and any additional cash payment made within a periodicity of two month or less. Hence the nomenclature of different component of wage is not important, but actual payment or liability to make payment for work don, in Cash is importnt. Anything paid in kind (like free food, house, tranport etc) are not wage, though it will attract Income tax. I am attaching below a mail reply given to Mr Banerjee few days back, to a specific question regarding certain kind of allowance. May be it will give you some clarity.
"Dear Mr Banerjee
Out of the four kind of allowance, each need to be understood differently when it comes to (a) deciding coverage limit of 10000 and calculating contribution in cased the employee is covered. Let us not mix up the issues. I will explain each case seperately.
Overtime allowance
This will not be taken into account for deciding coverage, but has to be taken into account for payment for contribution. For eg, if an employee is getting 9500 as wage including various monthly/bi monthly paid cash allowance, and get Rs 550 as OT in a month (total earning 10050, he will continue to be covered as if he is drawing Rs 10000 or below, but contribution need to be pad on full 10050 during the contribution period.
Incentive allowance
If it is paid or is payable quarterly, half yearly, or annualy, or in periodicity of over two month, it need not be taken into account for payment of contribution and also for deciding coverage, assuming that there is no contractual obligation, but if there is a contractual obligation, it will be taken into consideration for both coveraage and payment. This is my interpretation but in fact ESIC is normaly not claiming contribution on incentive when it is paid quarterly/half yearly or annualy (as in the case of annual bonus). But it will be considered both for payment of contribution and deciding coverage when payment is made monthlhy. Normaly where incentive is avaiable, people pay it monthly in case of those whoes other wage is close but below 10000, to avoid ESIC, but pay quarterly for others whoses wage will be well below 1000 even after taking incentive monthly.
Conveyance allowance.
There were contridictly judgement from High courts and sometimes in 2005 or so a final clarification was given by ESI HQ. As per this, if payment is a fixed amount or a percentage of Basic pay, or fixed for different cadre, irrespective of actual amount incurred by employee for conveyance from house to work and back, such allowance, though labelled as "Conveyance allowance" or Transport allowance etc, is wage anc contribution need to be paid/. But TA paid for duty related journey ( different from normal journey from home to work and back) and re-imubursement of actual conveyance charges subjdect to production proof of actual incurring for journey from hom to work and back, is not wage, since such payment is excluded from definition of wage. Similary if employees are paid transporft/conveyance allowance based on the type of vehicle he is maintaining, subject to proof of owning vehicle, and not flat or fixed rate, such payment will be reimbursement or transportation allowance, and not considered as wage for payment of contribution. In fact this is correct interpretation as per definition under Sec 2 (22). But in most cases, what is paid is a fixed amount depending on cadre of employees, without bothering the type of vehicle, distance or proof etc, and hence such payment has to be considered for payment of ESI Contribution.
Tiffin Allowance
If the amount is paid in cash to employee, ESI contribution is to paid on it, since it is nothing but element of wage. But in case your provide food, or purchase food coupen or token for hotel or canteen, and make bulk payment to such hotel against bill, and supply free coupen or token, no contribution need to be paid.
Also remember that whatever payment, that is taken as wage for payment of contribution, they are also taken into account, for deciding cov erage.
Eg. 1 Eg 2
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl Allow 2000
Over time allo. 500
ESI Covered ESI Cover.
Contribution on 10000 Contribution Rs 10500
Eg, 3
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl allowan 2000
Tiffin allowance 200 Over time 500
Fixed Conveyance 500
NOT covered Not Covered.
No Contribution
Hope you are clear now.
ESIC has issued many circulars to their field offices and Regional offices. They do not supply them to Employers. However they supply a small book called "Employers Hand Book" You can get it free. In case it is not available with ESI Regional Office, you can write to Director (PR), ESI HQ New Delhi. You can also ask for all circulars on Wage and clarification on various allowance issued uptodate using RTI Act.
Abdul O Hamid
From India, Coimbatore
"Dear Mr Banerjee
Out of the four kind of allowance, each need to be understood differently when it comes to (a) deciding coverage limit of 10000 and calculating contribution in cased the employee is covered. Let us not mix up the issues. I will explain each case seperately.
Overtime allowance
This will not be taken into account for deciding coverage, but has to be taken into account for payment for contribution. For eg, if an employee is getting 9500 as wage including various monthly/bi monthly paid cash allowance, and get Rs 550 as OT in a month (total earning 10050, he will continue to be covered as if he is drawing Rs 10000 or below, but contribution need to be pad on full 10050 during the contribution period.
Incentive allowance
If it is paid or is payable quarterly, half yearly, or annualy, or in periodicity of over two month, it need not be taken into account for payment of contribution and also for deciding coverage, assuming that there is no contractual obligation, but if there is a contractual obligation, it will be taken into consideration for both coveraage and payment. This is my interpretation but in fact ESIC is normaly not claiming contribution on incentive when it is paid quarterly/half yearly or annualy (as in the case of annual bonus). But it will be considered both for payment of contribution and deciding coverage when payment is made monthlhy. Normaly where incentive is avaiable, people pay it monthly in case of those whoes other wage is close but below 10000, to avoid ESIC, but pay quarterly for others whoses wage will be well below 1000 even after taking incentive monthly.
Conveyance allowance.
There were contridictly judgement from High courts and sometimes in 2005 or so a final clarification was given by ESI HQ. As per this, if payment is a fixed amount or a percentage of Basic pay, or fixed for different cadre, irrespective of actual amount incurred by employee for conveyance from house to work and back, such allowance, though labelled as "Conveyance allowance" or Transport allowance etc, is wage anc contribution need to be paid/. But TA paid for duty related journey ( different from normal journey from home to work and back) and re-imubursement of actual conveyance charges subjdect to production proof of actual incurring for journey from hom to work and back, is not wage, since such payment is excluded from definition of wage. Similary if employees are paid transporft/conveyance allowance based on the type of vehicle he is maintaining, subject to proof of owning vehicle, and not flat or fixed rate, such payment will be reimbursement or transportation allowance, and not considered as wage for payment of contribution. In fact this is correct interpretation as per definition under Sec 2 (22). But in most cases, what is paid is a fixed amount depending on cadre of employees, without bothering the type of vehicle, distance or proof etc, and hence such payment has to be considered for payment of ESI Contribution.
Tiffin Allowance
If the amount is paid in cash to employee, ESI contribution is to paid on it, since it is nothing but element of wage. But in case your provide food, or purchase food coupen or token for hotel or canteen, and make bulk payment to such hotel against bill, and supply free coupen or token, no contribution need to be paid.
Also remember that whatever payment, that is taken as wage for payment of contribution, they are also taken into account, for deciding cov erage.
Eg. 1 Eg 2
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl Allow 2000
Over time allo. 500
ESI Covered ESI Cover.
Contribution on 10000 Contribution Rs 10500
Eg, 3
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl allowan 2000
Tiffin allowance 200 Over time 500
Fixed Conveyance 500
NOT covered Not Covered.
No Contribution
Hope you are clear now.
ESIC has issued many circulars to their field offices and Regional offices. They do not supply them to Employers. However they supply a small book called "Employers Hand Book" You can get it free. In case it is not available with ESI Regional Office, you can write to Director (PR), ESI HQ New Delhi. You can also ask for all circulars on Wage and clarification on various allowance issued uptodate using RTI Act.
Abdul O Hamid
From India, Coimbatore
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ESI Circular - New Salary ceiling of Rs. 15,000 effective May 1, 2010.pdf
Salary Breakup with ESI.xls
ESI - Allowances Rules - Salary.docx