Pursuant to the ESIC notification dated 10 December 2025 & 11th December 2025, the provisions of the Code on Social Security, 2020 are now being operationalised for ESIC purposes. One of the key implications is the application of a uniform definition of “wages” for calculating ESIC contributions. Under this definition of wage means basic wages, dearness allowance and retaining allowance, and any other allowances exceeding 50% of total remuneration will be treated as wages. This may lead to a higher contributory wage base for employees currently having a salary structure skewed towards allowances. Employers are required to review and, where necessary, realign payroll structures to ensure correct ESIC deductions and statutory compliance.

The Notification copies dated 10th Dec 2025 & 11th Dec 2025 are attached herewith for your reference.

Further, below are the key changes as per the new code :

• • Now ESI will be appliable on 21K Wages (Basic+DA+RA) in place of 21K Gros
• • HRA is excluded in new wages, so, ESI is now not applicable on HRA as per new wage definition of Code on SS,2020
• • With the new Wage definition, Bonus is excluded from ESI.
• • With this new wage definition, ESI is deducted on Wages (Basic+DA+RA) and if basic is already 50% of the total remuneration, then ESI should not be applicable on Monthly or any incentive or performance bonus

Example

An employee’s compensation is ₹40,000 per month, and 50% is Basic which is ₹20,000, then ESI will be applicable on that 20,000 Basic salary.

For more details, please download the official circular or send your query to legal@ihrcgroup.com

•  In case of any query, please reach out to your respective SPOC.

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*Disclaimer: The above information is provided based on IHRC’s understanding and opinion and should not be treated as legal advice. For official guidance, please refer to the relevant Acts, Rules, and government notifications or consult a qualified legal professional for that matter.