Hi
ESI is payable on all sorts of remuneration, provided they are paid in intervals not exceeding 2 months. In case the remuneration is paid in an interval exceeding 2 months (eg. once in a quarter) then contribution need not be paid since it does not fall within the definition of wages as envisaged in the ESI Act under Sec. 2(22).
Therefore, you may see the periodicity of the payment and decide accordingly. In case, the it is paid within 2 months interval (Eg monthly), then as said by seniors you shall add the monthly incentive with the payroll wages and check whether it is exceeding the ceiling limit of Rs.10,000/-(i.e) Rs. 10,001/- and above pm. In case it exceeds contribution need not be paid. However, a rule of ESI Act says that, if an employee who was continuously covered under ESI, if goes out of the Coverage due to crossing of the ceiling limit due to salary hike or so, then the contribution is needed to be paid until the closure of the contribution period. There are 2 contribution periods in a financial year (apr to mar). the first one starts from 1st April and ends in30th Sept; the second one follows from 1st Oct and end on 31st March.
So, an employee all alaong drawing a monthly salary of 9000/- for april & may, due to earing of higher incentive if his earnings shoot up to 12000/- on june and thereafter, even then contribution is payable for the entire gross earned until the end of that contribution period (i.e) 30th Sept.
Hope this would clear ur doubts
Regards
RAmesh Kumar
From India, Madras
1ESI is payable on all sorts of remuneration, provided they are paid in intervals not exceeding 2 months. In case the remuneration is paid in an interval exceeding 2 months (eg. once in a quarter) then contribution need not be paid since it does not fall within the definition of wages as envisaged in the ESI Act under Sec. 2(22).
Therefore, you may see the periodicity of the payment and decide accordingly. In case, the it is paid within 2 months interval (Eg monthly), then as said by seniors you shall add the monthly incentive with the payroll wages and check whether it is exceeding the ceiling limit of Rs.10,000/-(i.e) Rs. 10,001/- and above pm. In case it exceeds contribution need not be paid. However, a rule of ESI Act says that, if an employee who was continuously covered under ESI, if goes out of the Coverage due to crossing of the ceiling limit due to salary hike or so, then the contribution is needed to be paid until the closure of the contribution period. There are 2 contribution periods in a financial year (apr to mar). the first one starts from 1st April and ends in30th Sept; the second one follows from 1st Oct and end on 31st March.
So, an employee all alaong drawing a monthly salary of 9000/- for april & may, due to earing of higher incentive if his earnings shoot up to 12000/- on june and thereafter, even then contribution is payable for the entire gross earned until the end of that contribution period (i.e) 30th Sept.
Hope this would clear ur doubts
Regards
RAmesh Kumar
From India, Madras
Dear Mr Banerjee
Out of the four kind of allowance, each need to be understood differently when it comes to (a) deciding coverage limit of 10000 and calculating contribution in cased the employee is covered. Let us not mix up the issues. I will explain each case seperately.
Overtime allowance
This will not be taken into account for deciding coverage, but has to be taken into account for payment for contribution. For eg, if an employee is getting 9500 as wage including various monthly/bi monthly paid cash allowance, and get Rs 550 as OT in a month (total earning 10050, he will continue to be covered as if he is drawing Rs 10000 or below, but contribution need to be pad on full 10050 during the contribution period.
Incentive allowance
If it is paid or is payable quarterly, half yearly, or annualy, or in periodicity of over two month, it need not be taken into account for payment of contribution and also for deciding coverage, assuming that there is no contractual obligation, but if there is a contractual obligation, it will be taken into consideration for both coveraage and payment. This is my interpretation but in fact ESIC is normaly not claiming contribution on incentive when it is paid quarterly/half yearly or annualy (as in the case of annual bonus). But it will be considered both for payment of contribution and deciding coverage when payment is made monthlhy. Normaly where incentive is avaiable, people pay it monthly in case of those whoes other wage is close but below 10000, to avoid ESIC, but pay quarterly for others whoses wage will be well below 1000 even after taking incentive monthly.
Conveyance allowance.
There were contridictly judgement from High courts and sometimes in 2005 or so a final clarification was given by ESI HQ. As per this, if payment is a fixed amount or a percentage of Basic pay, or fixed for different cadre, irrespective of actual amount incurred by employee for conveyance from house to work and back, such allowance, though labelled as "Conveyance allowance" or Transport allowance etc, is wage anc contribution need to be paid/. But TA paid for duty related journey ( different from normal journey from home to work and back) and re-imubursement of actual conveyance charges subjdect to production proof of actual incurring for journey from hom to work and back, is not wage, since such payment is excluded from definition of wage. Similary if employees are paid transporft/conveyance allowance based on the type of vehicle he is maintaining, subject to proof of owning vehicle, and not flat or fixed rate, such payment will be reimbursement or transportation allowance, and not considered as wage for payment of contribution. In fact this is correct interpretation as per definition under Sec 2 (22). But in most cases, what is paid is a fixed amount depending on cadre of employees, without bothering the type of vehicle, distance or proof etc, and hence such payment has to be considered for payment of ESI Contribution.
Tiffin Allowance
If the amount is paid in cash to employee, ESI contribution is to paid on it, since it is nothing but element of wage. But in case your provide food, or purchase food coupen or token for hotel or canteen, and make bulk payment to such hotel against bill, and supply free coupen or token, no contribution need to be paid.
Also remember that whatever payment, that is taken as wage for payment of contribution, they are also taken into account, for deciding cov erage.
Eg. 1 Eg 2
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl Allow 2000
Over time allo. 500
ESI Covered ESI Cover.
Contribution on 10000 Contribution Rs 10500
Eg, 3
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl allowan 2000
Tiffin allowance 200 Over time 500
Fixed conveyance 1000
NOT covered
No Contribution
Abdul O Hamid
From India, Coimbatore
Out of the four kind of allowance, each need to be understood differently when it comes to (a) deciding coverage limit of 10000 and calculating contribution in cased the employee is covered. Let us not mix up the issues. I will explain each case seperately.
Overtime allowance
This will not be taken into account for deciding coverage, but has to be taken into account for payment for contribution. For eg, if an employee is getting 9500 as wage including various monthly/bi monthly paid cash allowance, and get Rs 550 as OT in a month (total earning 10050, he will continue to be covered as if he is drawing Rs 10000 or below, but contribution need to be pad on full 10050 during the contribution period.
Incentive allowance
If it is paid or is payable quarterly, half yearly, or annualy, or in periodicity of over two month, it need not be taken into account for payment of contribution and also for deciding coverage, assuming that there is no contractual obligation, but if there is a contractual obligation, it will be taken into consideration for both coveraage and payment. This is my interpretation but in fact ESIC is normaly not claiming contribution on incentive when it is paid quarterly/half yearly or annualy (as in the case of annual bonus). But it will be considered both for payment of contribution and deciding coverage when payment is made monthlhy. Normaly where incentive is avaiable, people pay it monthly in case of those whoes other wage is close but below 10000, to avoid ESIC, but pay quarterly for others whoses wage will be well below 1000 even after taking incentive monthly.
Conveyance allowance.
There were contridictly judgement from High courts and sometimes in 2005 or so a final clarification was given by ESI HQ. As per this, if payment is a fixed amount or a percentage of Basic pay, or fixed for different cadre, irrespective of actual amount incurred by employee for conveyance from house to work and back, such allowance, though labelled as "Conveyance allowance" or Transport allowance etc, is wage anc contribution need to be paid/. But TA paid for duty related journey ( different from normal journey from home to work and back) and re-imubursement of actual conveyance charges subjdect to production proof of actual incurring for journey from hom to work and back, is not wage, since such payment is excluded from definition of wage. Similary if employees are paid transporft/conveyance allowance based on the type of vehicle he is maintaining, subject to proof of owning vehicle, and not flat or fixed rate, such payment will be reimbursement or transportation allowance, and not considered as wage for payment of contribution. In fact this is correct interpretation as per definition under Sec 2 (22). But in most cases, what is paid is a fixed amount depending on cadre of employees, without bothering the type of vehicle, distance or proof etc, and hence such payment has to be considered for payment of ESI Contribution.
Tiffin Allowance
If the amount is paid in cash to employee, ESI contribution is to paid on it, since it is nothing but element of wage. But in case your provide food, or purchase food coupen or token for hotel or canteen, and make bulk payment to such hotel against bill, and supply free coupen or token, no contribution need to be paid.
Also remember that whatever payment, that is taken as wage for payment of contribution, they are also taken into account, for deciding cov erage.
Eg. 1 Eg 2
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl Allow 2000
Over time allo. 500
ESI Covered ESI Cover.
Contribution on 10000 Contribution Rs 10500
Eg, 3
Basic wage 4000 Basic Wage 4000
DA 3000 DA 3000
Heat allowances 1000 Heat allow. 1000
Sp.allowance 2000 Spl allowan 2000
Tiffin allowance 200 Over time 500
Fixed conveyance 1000
NOT covered
No Contribution
Abdul O Hamid
From India, Coimbatore
DEAR HR PROFESSIONALS.. one of my friend is left the organisation on 30.09.2016 recently... i have one doudt here his ESI contribution payment was done up to 30.09.2016... is any possibility to get ESI returns.. or Money back to or any benefit from ESIC
From India, Gurgaon
From India, Gurgaon
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ESI contribution rates lowering.pdf