ESI calculation including variable pay

This query is : Resolved

BALAMURUGAN GOPAL (Querist)
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13 May 2022 Hi All

What would be the ESI applicability if an employee getting salary with different amount due to receipt of Sales incentive? (Fixed pay + Sales incentive)

Please clarify me what a company do comply with ESI provisions on below instances.

Instance 1:

An employee is getting salary of Rs. 25000 (Fixed Rs. 20000+Incentive Rs. 5000) including Sales incentive in a month. What will be ESI contribution?

Instance 2:

The same employee getting salary of Rs. 20000 (Fixed Rs. 20000+Incentive Rs. 0) including Sales incentive in a month. What will be ESI contribution?

Is anybody can guide me in this regard?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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07 July 2024 ESI (Employee State Insurance) applicability is determined based on the gross salary paid to an employee per month. Here’s how it applies to the instances you mentioned:

### Instance 1:
- **Salary Breakdown:** Rs. 25,000 (Fixed Rs. 20,000 + Incentive Rs. 5,000)
- **ESI Applicability:** ESI is applicable because the gross salary (including incentives) is Rs. 25,000.
- **ESI Contribution Calculation:** The employer and employee would contribute to ESI based on the total gross salary of Rs. 25,000.

### Instance 2:
- **Salary Breakdown:** Rs. 20,000 (Fixed Rs. 20,000 + Incentive Rs. 0)
- **ESI Applicability:** ESI is not applicable in this instance because the gross salary (including incentives) is only Rs. 20,000.
- **ESI Contribution Calculation:** Since the gross salary does not exceed the ESI threshold, neither the employer nor the employee would contribute to ESI.

### Summary:
- **ESI Threshold:** As of now, the ESI contribution is applicable if the gross monthly salary (including all components like basic pay, incentives, allowances, etc.) exceeds Rs. 21,000.
- **Calculation Basis:** ESI contribution is typically calculated as a percentage of gross salary (employer's contribution and employee's contribution).
- **Employer Responsibility:** It is the employer's responsibility to deduct and contribute ESI based on the applicable gross salary for each employee.

In both instances, ensure that the salary components are clearly defined and that ESI contributions are deducted and remitted correctly based on the total gross salary inclusive of all components like fixed pay and incentives. If there are any changes in ESI regulations or thresholds, it's advisable to verify with the latest guidelines or consult with a professional for specific cases.