Calucation Of ESI Contribution For Overtime Amount

Dear Seniors,

Greetings for the day.

I have a query regarding the calculation of overtime. Is it included in calculating the ESI monthly contribution? Please explain how it is calculated.

Is there any concept of OT1 and OT2 in ESI related to overtime? If yes, what do they mean and what are the differences between OT1 and OT2? How are they calculated in ESI contribution?

Please guide me on this topic.

Thank you,
Deepak Agarwal

There is nothing like OT1 & OT2. It may be for the understanding of your establishment only.

ESI is applicable when someone's monthly salary - washing allowance is less than 15000/- per month. If an employee gets a daily salary of 300/-, then his monthly salary is considered as 300 * 26 = 7800, and he is under the ceiling limit of ESI. All earning amounts other than overtime are considered as ESI wage. In the upper case, if he will get production incentive or any production bonus of even 12000/-, then his ESI wage will be 12000 + 7800 = 19800 - washing allowance - earned overtime amount.

There is no such thing as OT1 & OT2. ESI is applicable on OT. ESI is not applicable on allowances paid quarterly, half-yearly, or annually.

Regards,
Bhavik Chheda
Chheda Consultancy Services: Consultants for Payroll Processing, Labour Laws, Provident Fund, ESIC, Professional Tax, MLWF, Shop Licence, etc. in Mumbai, Maharashtra
[Chheda Consultancy Services](http://www.chhedaconsultancyservices.com)

Deepak,

In case of overtime payments being made along with monthly wages, it attracts ESI and we have to deduct from the employee @Rs. 1.75%. Additionally, the employer should pay Rs. 4.75% to the ESIC as per statutory requirements.

Please ensure adherence to the statutory requirement.

Thank you.

Dear Deepak,

In most of the manufacturing units, overtime (OT) is disbursed in two ways:

One is OT1, i.e., 1+1. For example, if his salary for the day is 100, then it will be 100+100=200.

The second one is OT2, which is normally paid for working on holidays. For example, if the salary per day is 100, then it would be 100+200=300.

OT2 is paid based on the holidays listed by the respective government and also as per the agreement between workers and management regarding some local holidays.

Presently, in my organization, we are following the mentioned practices with a restriction on OT2.

Regarding the ESIC contribution: the OT should not be considered or added while calculating the ESIC limit of 15,000 for coverage purposes, as OT is not a regular income of the employee. For employees below a salary of 15,000 who are covered by ESIC and also receive OT, then ESIC is to be calculated (Employee 1.75% and employer 4.75%), as all the components are included for the deduction of ESIC contribution.

This is how we are operating in my industry.

You may await senior views on this subject.

Regards,

Eswar