Dear Experts, My company pays a monthly basic salary of Rs. 8,000 (more than the Minimum Wage) and also a production incentive based on the output of the worker. The basic salary being monthly wage is a fixed amount for all months, irrespective of number of actual working days, if the worker is present for the full month. The incentive is of course paid only on days when worker is present and produces as per the incentive scheme.
We have so far been deducting and paying ESI contribution based on the gross wages (basic PLUS production incentive,) since gross wages have always been less than Rs. 15,000. Last month, several of our workers earned high incentive and their gross wages exceeded Rs. 15,000.
Our dilemma: The local ESI Branch Manager says that the gross wages (basic + incentive) must be considered to decide if the worker is covered under ESI, especially since April is the first month of the contribution period. According to him, therefore, workers whose gross wages exceeded Rs. 15,000 should not be included in the ESI Return.
Our consultants advise us that, for deciding coverage under the scheme, ONLY the basic should be considered, irrespective of the gross salary. Thus, according to the consultants, if the basic salary is Rs. 8,000 and even if the incentive is Rs. 12,000, the worker is covered since his monthly basic is less than the ceiling of Rs. 15,000.
The consultants also advise that, in such cases, the deduction/contribution should be on the gross wages (i.e. basic + incentive) and the worker will get cash benefit if claimed based on the daily average computed on basic + incentive.
Please help to clear the confusion with specific references to the provisions of the ESI Act. Unless there are specific provisions or case law, we will be unable to convince either side as to who is right.
Thank you in advance.