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India Likely to Increase Wage Ceilings for ESI and PF

(Sunnyvale, CA)- The government of India is planning to increase the wage limit of Employee State Insurance (ESI) and Provident Fund (PF). Employers may have to pay more and their compliance burden is also likely to increase, says Nair & Co.’s International HR services Team.

Key proposals to be included:

1 USD = INR 54
Ceiling
Existing Limit
(Per Month)
Proposed Limit
(Per Month)
Wage ceiling for coverage of employees under PF*
Rs 6,500
Rs 15,000
Wage ceiling for coverage of employees under the ESIC Act for ESI **
Rs 15,000
Rs 25,000

*- PF is payable at the rate of 12% (each by employers and employees) on basic salary. It applies to establishments employing 20 or more persons. The exclusion of Rs. 6,500 is not applicable to International Workers.

**- Employers contribute towards ESIC at 4.75% and employees at 1.75% of total salary.

Implications of the proposal:

Significant increase in the number of employees covered

Considering a white collar employee’s compensation range in India, the wage limits are low. However, the ceilings for PF are ‘basic salary’ ceilings (usually 30%-50% of total salary) and do not cover the entire compensation of an employee. Nevertheless the new proposed regulation will cover many junior to mid level employees who may be currently exempt. There will also be a substantial increase in the employees covered by the new ESI limit.

Cost increase for companies

The employers’ contribution towards the employees may increase with the increase of salary threshold and number of employees covered. For example: Employers’ contribution for PF may go up approximately by 130% per employee. As both contributions require monthly payments and returns, the compliance burden of companies is likely to increase.

The government is also planning to fix a minimum wage of Rs 10,000 for workers employed in the unorganized sector.

For more information on this topic, email media@nair-co.com

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Disclaimer:


Published: April 12, 2013. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.

 
 
 

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