Dy. Mgr - Hr & Admin.
Sushil Sharma Gd
Nvr & Associates Ltd
Korgaonkar K A
Legal, Training
Hr Generalist
Hr Manager
+3 Others

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can any one guide me what are the allowances that are exempted from E.S.I and P.F.DEDUCTIONS - D.BALAVINAYAGAM
As regards ESI coverage , there is no exclusion for nomenclature. All allowances are includible for ESI purpose.
And annual payout will exempted from ESI (Like, Diwali bonus, Attendance bonus, if LTA paid 2 yearly etc)
Drawing more than Rs. 15001/- are exempt from deduction of ESI.


Sir, to understand the definition of wages under the provisions of Employees State Insurance Act, I am reproducing the definition of :-

“Wages” means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes 25[any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or layoff and] other additional remuneration, if any, 26[paid at intervals not exceeding two months], but does not include-

(a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) Any travelling allowance or the value of any travelling concession;

(c) Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) Any gratuity payable on discharge;

The ESI contribution is payable on the all the allowances except value of travelling expenses reinbursement and washing allowance as on date. If the production incentive paid to the workers on every month with the wages/ salary will be considered as wages for the purpose of contribution under the provisions of Employees' State Insurance Act, 1948;

The Employees Provident Fund & Micellaneous Provisions Act, 1952. The definition of wages under the provisions of the Act is :-

2(b) “Basic wages” means all emoluments which are earned by an employee while on duty or 4[on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

(i) The cash value of any food concession;

(ii) Any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(iii) Any presents made by the employer;

Means, the contribution under the provisions of EPF & MP Act 1952, is payable only on basic wages. In a writ petition No.15443/2009 between APFC vs. G4 Security, the Punjab & Haryana High Court has held on 1st February, 2011 that the minimum wages can be bifurcated into allowances and the Provident Funds contributions will not be attracted on allowances. According to the judgement of Hon'ble Punjab & Haryana High Court, the management is liable to pay contribution only on Basic wages only.

Dear All. Please go through the attached files on ESI wages. S.Sethupathy, Excellent HR Services, Erode.

Attached Files
File Type: doc ESI-Not-applicable-on-Conveyance-Allowance.doc (43.0 KB, 5425 views)
File Type: doc ESI wages.doc (51.5 KB, 2873 views)

pls help me to explain washing allowance respected to ESIC contribution? and other details related leave encashment of workers and staff?
washing allowance paid to reimburse expenses to those employees who wear uniform is excluded from wages.Leave encasment is also excluded from the definition of wages for P.F contribution.

as per esi act, i doubt there is a provision for get exemption on the following components while taking gross pay as the criteria for esi eligibility:
1. Transport allowance
2. Washing allowance
3. Contributed epf / pension fund
can experts let me clarify with clear proofs that how far we can go legally while synchronizing with min wages as well as esi exemption on the above components ?
4. Is there any way for getting complete esi exemption ? What is procedure ? Ours is a hospital.

Hello Balaram

The understanding of wages with refrence to coverage of employees and with reference to paying contribution is different.So far sa the coverage of employees is concerned, you need to take the entire gross salary (basic + all allowances) except over time, into consideration in terms of Sec.2(9) of ESI Act 1948 read with Rule (50) of the ESI Rules 1950 and thus an employee whose gross salary per month is Rs.15000/- and less will be covered by the ESI Act.

However so far as paying contribution on various components are concerned, you need to refer to the definition of wages under Sec.2(22) along with ESI circular on wages which is given by Mr.Sethupathy above in this thread for the benefit of members, which clearly exclude travelling allowance, contributions to pension and P.F and washing allowance you have stated in your post.

After going through the above provisions of the ESI Act/rules and ESI circular, you will observe that there is no point tinkering with minimum wages payable to employees since all allwonaces(except over time) are included for the purpose of covering an employee.

So far as exemption from ESI is concerned, it is only the appropriate government which in your case will be the State Government that can grant exemption under Sec.87 of the ESI Act for which you need to make a request to ESI authorities. However these exemptions are normally limited by time and need to be renewed from time to time and proably will be granted provided you provide better medical your employees. It means, it becomes your responsibility to compensate the employees for the medical expenses incurred by them. Therefore it is better to cover them under ESI.


HR & Labour Law Advsior


I just wish to add to Saikumar ji that it is not only the better medical benefit but
all the benefits substantially similar or superior than benifits under ESIS, then only you can seek an exemption as per section 87.

pl let me know about Best player Bonus(Incentive) exempted from ESIC, i want gave to my employee who is best of month, so i want pay to gift in salary, thats mean best plyaer incentive, pl suggest me about this part is exempted or not
Ashok Patil

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