esi wil be payable on O.t Wages irrespective of coverage if u r paying o.t to a exempted employee then also u have to deduct esi but that should to be on ot amount only .plz go through esic.nic.in and see the O.t definition there
OVERTIME ALLOWANCE
In the case of the employer as and when the employer finds the need to have work done expeditiously, in addition to the normal work during the course of the working hours, the employer offers to the employee to do the overtime work after the working hours. When employee does overtime work it amounts to the acceptance for the same, hence there emerges concluded implied contract between the employer and the employee. Both the remuneration received during the working hours and overtime constitutes a composite wage and thereby it is a wage within the meaning of Sec.2(22) of the ESI Act. Therefore, the contribution is payable on the overtime allowance. However, overtime allowances will be considered as wage for the purpose of charging the contribution only and will not be considered for the purpose of the coverage of the employee under the Scheme.
The same view was held by the Supreme Court in its judgement delivered on 6.11.96 in the case of Indian Drugs & Pharmaceuticals Ltd. Vs. ESIC, in Civil Appeal No.2777 of 1980.
(Old instructions issued vide memo No.3-1(2)/3(1)/68 dt. 31