Can We Include Bonus in ESI Calculations in the Pharma Industry? Seeking Guidance

Dear Seniors,

In the pharma industry, can we pay ESI on a bonus? Bonus is one of the components in our salary structure. Does this vary from state to state? Kindly assist me in understanding whether a bonus can be included in the salary breakdown. Please help me.

Saran

Any payment made within an interval of not exceeding two months shall attract ESI. Therefore, if a bonus is paid monthly, the same will be treated as part of the salary and will attract ESI. On the other hand, a bonus paid annually and following the Payment of Bonus Act will not be considered for ESI.

Regards, Madhu.T.K

Dear Sir,

Thank you for your quick reply. Currently, Basic, HRA, Bonus (8.33%), Conveyance allowance, Edn allowance, and FBP are my monthly salary breakups. Now, my MD wants me to remove the bonus from the breakup but pay it monthly as an addition. Can we do that? If yes, could you please guide me in designing my new breakup? If not, could you suggest a new breakup if I would like to pay the bonus every quarter or every 6 months.

Please help me.

Saran

Dear friend,

As has been pointed out, any payment that forms part of the salary paid at intervals of not exceeding two months will attract ESI contribution. Normally, a bonus is not paid monthly, nor does it form part of the salary component. While it is paid annually or bi-annually, it is taken into account for calculating the cost to the company.

S. Krishnamoorthy

Thank you for your information, Sir. Do we need to pay a bonus to an employee who has resigned from duties? Can I have the details, please? I searched this site regarding the same but could not find any details. Please help.

Regards,
Saran

Dear Saran,

As per my understanding, we do not need to pay ESI on statutory bonuses. However, if it is a production bonus and is paid on a monthly basis, then you should pay ESI on that bonus amount.

Regards,
Raghav

Dear Mr. Raghav,

This means that I need not pay ESI on the monthly bonus I am paying to my marketing staff. However, the production bonus, if paid monthly, will attract ESI. My company started 10 years ago, and my factory began operations 6 months ago. Do I need to pay a bonus to my factory staff, or can I start paying the bonus from the 6th year onwards? Kindly advise.

Regards,
Saran

ESI Applicability on Bonus Payments

Any payment made in an interval not exceeding two months shall attract ESI. Therefore, if a bonus is paid monthly, it will be treated as part of the salary and will attract ESI. On the other hand, a bonus paid annually and following the Payment of Bonus Act will not be considered for ESI.

Regards,
Madhu.T.K

Thanks, Ms. Madhu.T.K., I have one question. As per the Bonus Act, an employee is eligible for a bonus after completing 30 working days. If we pay the bonus after the completion of 30 working days (or if the employee has resigned), will the bonus be considered under ESI or not?

In such a situation, ESI will not apply to the payment of a bonus because the payment is to be made only once during the service period, and there is no recurrence. Therefore, it will be outside the ESI coverage as per sec. 2(22) of the ESI Act.

Regards,
Pkjain

In section 2(22)-ESI point 1) [B][U], it does not include any contribution paid by the employer to any pension fund or provident fund, or under this Act. Our salary, when considering the cost to the company, means that the 24% PF amount is considered as a part of the CTC. In this case, the employer's 12% contribution falls under ESI.

Regards,

Dear Mr. Sameer, in the definition of wages under the ESI Act, no specific percentage has been defined. Without any restrictions, any amount paid by the employer towards the employer's contribution to any Pension Fund, Provident Fund, or ESI Scheme is exempted.

Regards,
pkjain