Harsh Kumar Mehta
Consultant In Labour Laws/hr
Kartiken
Mgr-hr
+1 Other

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Dear Friends,

Hello. I was computing ESI of staff in my company. For marketing staff we have profit linked allowance based on net sales.

I have queries on two grounds:-

1. if variable portion is part of wages for ESI computation.

my related searches here-below imply to be part of wages all though i have heard it not part of wages for ESI calculation . If I am not wrong line of demarcation is two month basis. In our case where profit linked allowance based on net sales is on monthly basis, it will be all though some where else has prescribed variable portion as not being part.

2. if it is not a part there is no issue. But if it is a part then there is one more issue, how do we manage the ESI i.e at time when the total salary (i.e fixed pay portion and variable pay portion) is less than or equal to 15000, ESI becomes applicable and when it exceeds 15000 above then it wll not be applicable.

As far as I know this is not practically implementable that we pay at time (when <1500) and skip another time (when >15000)

Can some one guide me o this issue.

regards

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links are :

CONSTITUTION OF WAGES UNDER THE EMPLOYEES STATE INSURANCE ACT, 1948 heading – sales commission

Handloom House Ernakulam vs Regional Director, Esi on 29 April, 1999 (Case Study)

Employee's State Insurance Corporation heading incentive bonus

Sir,

with reference to issue raised by you regarding coverage of profit linked sales allowance as wages under ESI Act, 1948, it is submitted as follows:-

1. You have not indicated as to how such sales commission is assessed/calculated. In case, it is calculated every month, then it is part of wages and contribution is payable under said Act. It is also not mentioned whether, the payment of such sales commission is paid as a part of terms and conditions of employment of such marketing salesmen.

2. While calculating contributions to be paid under ESI Act, such amount of Sales Commission is to be added in the wages obtained in respect of an employee in a month and if in respect of any employee the wages becomes more than Rs. 15000/-, after adding sales commission in the first base month of contribution period, then such employee, in my opinion, can be exempted. But here if his wages + such sales allowance in any of subsequent months again comes to Rs. 15000/-or less then in such scenario, the employee will be again coverable from that very month and contribution will be payable for rest of the months of contribution period on total wages including such profit linked sales alloweance. Please see Section 2(9) of said Act read with Rule 50 of ESI (Central) Rules, 1952.

If you have any doubt, and in order to be on safe side, I will suggest you to take up the matter with Regional/Sub/Divisional Office of ESIC of your area with complete details of profit linked allowance on net sales paid with your views for approval.

Dear Mehta Sir,
As I said the sales commission, it is based on sales turnover, pro rata, which does not come more than total salary (fixed pay and variable pay), computed each month and paid as part of terms and conditions explicitly mentioned in Appointment letter.
My concern was if it is implementable and in 1st month ESI is to be paid whereas in next month total salary (fixed pay + variable pay) is >15000,it becomes payable then is it implementable to pay ESI in month when it becomes payable and not tot pay in month when it does not become payable.
Is there any means to avoid this discripency?

Dear Friends,
I would appreciate from you more light on this.
also I have come to know that there are two quarters April- Sep and Oct -Mar. If the base period has salary less than 15000 then for that half yearly period ESI is applicable If base period has salary greater than 15000 then it is not applicable for that half yearly period
Kindly elucidate on application when within two month period and also if we can have some other option to it.
Regards

Please refer ESIC Portal wherein you will get a detailed idea for your above mentioned query. As per my view ESIC contribution will be applicable on Sales Commission Paid every month, whether the gross salary crosses the limit of Rs. 15,000/- p.m. Please refer the below case law
Case law: - Sales commission received by employees once in a month, which is an additional remuneration
paid at intervals not exceeding two months would attract contribution under the Act. - Gem and Company,
Madras V. ESI Corporation, Madras - 2000 (3) LLN 310.

Hello kartiken
Your doubt is specifically answered by the proviso to sec.2(9) of the ESI Act which states that an employee whose wages (excluding Overt time) exceed Rs.15000/- p.m after adding sales commission, at any time after the beginning of the contribution period, shall continue to be covered as an employee till the end of the contribution period.Thus if an employee's wages exceed Rs.15000/-p.m after adding sales commission, in the month of May, he will continue to be covered till the month of September.Thus by this you will mostly avoid the dilemma of coverage.
B.Saikumar
In-House HR & IR Advisor

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