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Dear Seniors and Colleagues,

Please help me with the reply of the following query:

1. We have engaged around 1300 contract labours through various vendors for these contract workers we are paying Leave with Wages amount through vendors on monthly basis along with their salary, our query is whether this leave with wages amount have to consider for PF calculation & ESI calculation?

2. We are paying Statutory Bonus (Advance Bonus) for 1300 Contract workers through vendors on monthly basis along with their salary, our query is whether this Statutory / Advance Bonus amount have to consider for ESI calculation?

Thanks in advance

Tonmoy Duta

From India, Bengaluru

Dear Tonmoy Dutta,

As you are well aware contributions to social security schemes under the Employees State Insurance Act,1948 and the Employees Provident Fund Act,1952 are computed on the basis of the definition of the term 'wages' respectively u/s 2(22) and 2(b) of both the Acts.

If we critically analyze the definition of wages u/s 2(22) of the ESI Act,1948, we can conclude that all the components forming part the remuneration which is paid at intervals not exceeding two months other than the excluded components should be taken into account for the purpose of calculation of contribution payable towards the insurance scheme.
I am not, therefore, able to think to the best of my understanding of the statutory leave provisions that payment of leave with wages on monthly basis can be excluded from the calculation of contribution. That apart, every law providing the benefit of Earned Leave or Annual Leave with Wages lays down the method of calculation of such leave linked to the attendance of the employees during a 12 months' period, its accumulation to a certain ceiling and its encashment only in the event of termination of employment. Compliance of a legal provision, in its true sense, means doing the thing only in the manner the law has specifically provided and cannot be otherwise. Paying off salary for the leave earned during the same month would certainly defeat the very purpose of such a leave provision which enables the employee to peacefully enjoy his leisure or discharge his family/social commitments as and when required. If perceptions of financial burden and uncertainty of continued employment overwhelmingly influence both the benefactor and the beneficiary, annual sanction of encashment of a certain portion of the accumulated EL may be tolerated as a measure of expediency.

Coming to the question of adding the amount of leave encashment to the contribution to EPF, the legal controversy had already been settled once for all by the hon'ble Supreme Court of India in its judgment in Manipal Academy of Higher Education v. Provident Fund Commissioner [ AIR 2008 SC 1951 ] which held categorically that surrender leave salary does not form part of basic wages u/s 2(b) of the EPF Act,1952 for the purpose of contribution u/s 6 of the Act.

Similarly, in my considered opinion, the monthly payment of statutory bonus by way of bonus advance cannot be treated to be forming part of wages for the purpose of computation of contribution under both the enactments.

From India, Salem
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