Understanding ESIC Deductions: How Do Incentives Affect Employee Contributions?

For example, the cost to company (CTC) of one employee is $9500. In one month, he receives $3000 as an incentive, while in other months, it varies between $200 to $2000. Will the Employee State Insurance Corporation (ESIC) be deducted in this case?

Incentives paid as part of a contract of employment shall be treated as part of wages for the determination of ESI contribution. However, for deciding the eligibility of an employee for ESI coverage, the treatment of incentives will be different. Since the incentive is not a fixed amount but varies according to performance, it will not be taken as the basis for coverage or non-coverage of an employee.

In the instant case, the employee will be covered by ESI, and a contribution subject to Rs. 10,000 has to be paid from the salary, including incentives.

Regards,
Madhu.T.K