The new ESI wage ceiling – Applicability and Impact
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The new ESI wage ceiling – Applicability and Impact

Introduction

Employees’ State Insurance or ESI is the insurance that provides medical care to industrial workers and other employees. You can use this insurance in case of sickness, maternity, injury, and other medical-related matters.

The ESIC has now increased the wage limit for the ESI Act to Rs 21,000. The wage ceiling was last raised in May 2010. Back then, the wage limit was increased from Rs 10,000 to Rs 15,000. Now the wage limit has been raised to Rs 21,000. This brings it in line with the wage limit for the Payment of Bonus Act.

ESI wage ceiling for the past 20 years

ESI wage ceiling for past 20 years

Impact of increase in the ESI wage ceiling

  • The increase in the wage ceiling for ESI from Rs 15,000 to Rs 21,000 means that an employer makes contributions for more number of employees earning between this limit. The important factor to decide whether an employee covers under the ESI Act is whether the employee’s monthly ‘wages’ exceeds Rs 21,000.
  • The wages here mean an employee’s gross earnings. I.e.,  The total of all earning heads.
  • The increase in wage ceiling impacts the finances of the employees. For the ESI Scheme contributions are made from both employers (4.75%) and employees (1.75%). So, the take-home salary of employees earning between Rs 15,000 to Rs 21,000 decreases as the employee contribution of 1.75%  deducts from their salaries.
  • Once an employee starts earning a wage of more than Rs 21,000, ESI contributions will be made only till the end of the contribution period. It is a 6-month period.
    • E.g.: Consider that an employees’ gross earning is Rs. 20,000  in April. In July, that person gets an increment which leads him out of ESI coverage, i.e, salary increases to Rs. 25,000.
    • In this case, the employee will continue to contribute 1.75% for ESI on Rs. 25,000 from July to September. From the second half of the year i.e., October to March there will be no contribution towards ESI.

With the rise in the wage threshold, about 3.5 million employees will now fall under the ESI Act. From a company’s perspective, we see that the impact of this change is a financial one.

The ESI notification of the amendment is here: Find the notification here.

P. S: For users of our Saral PayPack Software, we have updated the ESI rates to the latest ceiling. Please ensure you are using the more recent version of the software.

If you are not a user, you can try our software for free. Do check it out.

Image made with the help of icons from Freepik, licensed under CC 3.0 BY

44 Comments

  • Hi…
    In our company employees are working based on daily wage rate and their monthly basic salary is Rs.18070…
    Sometimes we are paying overtime to employees who are continuing to do work after working hours. Overtime amount can be 4000 or more.
    So my question is we have to deduct ESIC Contribution for that employee in that month…..becz overtime allowance can not be regularly payable. It may be differ and in that case not possible to mention last working day as from next month salary can be less than 21000.

    • Overtime is not considered for ESIC. Hence, you can consider only based on Basic Salary.

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    • Thank you for reading and commenting. We are glad this blog was useful to you.

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