How are ESI and PF calculated? Know in detail
Posted on: 09/May/2017 5:48:21 PM
Below are details of statutory compliance requirement needed for ESI deduction.
The ESI fund is maintained under ESIC. It is intended to provide medical benefits to the employees and families of employees earning lesser than or equal to Rs 21,000 every month. Here, the employer and the employee contribute 4.75 percent and 1.75 percent respectively for the total of 6.5 percent.
To calculate ESI, the monthly salary includes monthly payable amounts like dearness allowance, basic pay, HRA, incentive allowance, city compensatory allowance, attendance bonus, meal allowance and incentive bonus. The annual bonus or retrenchment compensation or encashment of leave and gratuity are not included in the salary.
Calculation of ESI:
If the monthly salary of the employee is Rs 9000 per month, the ESI is calculated as
ESI = 9000 * (1.75/100) which equals Rs 158. This 1.75 percent is the contribution by the employees.
Coming on to the contribution of employer, the ESI is calculated as
9000 * (4.75/100) which equals Rs 428. This 4.75 percent is the contribution made by the employer.
While the salary of the employee is more than Rs 21,000 per month, the higher salary will be considered for ESI. If the salary is hiked to Rs 22,000 every month, the ESI should be calculated for the new amount Rs 22,000 and not the old amount of Rs 21,000.
Requirement of statutory compliance for PF deduction:
Below are the requirements for statutory compliance for PF. Similar to ESI, the Employees Provident Fund or the EPF is also a contributory fund where employee as well as the employer makes their respective contribution. This is made mandatory as per the Employees’ Provident Fund and Miscellaneous Provisions Act 1952.
Unlike ESI, here, both the employee and employer make equal contribution of 12 percent of the total salary. The employee’s contribution is however subject to change and if one is willing, they can make more than 10 percent contribution too. There is no compulsion for the employer to equal the contribution of employee in this regard.
The basic wages, DA, conveyance and special allowance are taken into account while calculating PF contribution.
The maximum salary limit of employees for PF deduction is Rs 15,000. So, even if the employee receives more than Rs 15,000 salary, the employer will be liable only for Rs 1,800 towards Rs 15,000 salary.
There are many factors unknown about PF contribution. PF comprises of EPF and EPS where EPS if Employee Pension Scheme. While the employees’ contribution reaches directly the EPF, 8.35 percent of employer’s contribution will go to EPS up to Rs 1,250 per month and the remaining reaches EPF. All these automatically calculated using payroll software.
