Dear Pratap,
I hope the following explanation helps you.
ESI will be calculated on WAGES that include all remuneration paid or payable in cash to an employee, if the terms of employment, express or implied, were fulfilled. This includes any payment to an employee in respect of any period of authorized leave, lockout, strike, which is not illegal or layoff, and other additional remuneration, if any paid at intervals not exceeding two months. However, it does not include:
a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act.
b) Any traveling allowance or the value of any traveling concession.
c) Any sum paid to a person employed to defray special expenses entailed on him by the nature of his employment.
d) Any gratuity payable on discharge.
While calculating the coverage of ESI, the OT paid to an employee should not be taken into consideration (Sec 2 (9)). But while calculating the contribution of ESI, the OT value should be taken into consideration (Sec 2 (22)).
For example:
- Basic 2000
- DA 2500
- HRA 1500
- TA 650
- MA 750
- Shift allowance 500
- SPL Allowance 1200
- Misc Allowance 500
- OT 1000
Total = 10,600
In this case, the employee should be covered under ESI by adding all components other than OT, which comes to 9,600/-, below 10,000/-. As a result, the employee is covered under the ESI Act. However, while calculating the contribution, the amount of OT has to be considered as per the definition of "wages" of the ESI Act, resulting in a contribution of 4.75% calculated by taking the OT value into consideration, i.e., 10,600/-.
Note: If TA is paid to defray expenses made on traveling (not the same amount every month), then TA may not be considered for the calculation of ESI contribution.
*Paid and Payable concept of Wages in ESI
Payable concept:
An employee gets a gross salary of 11,500 per month. Suppose on a particular month the employee's gross salary due to leave without pay comes to 9,500/-. It may be noted that ESI cannot be deducted from his salary (9,500) just because the employee's gross salary is less than 10,000. The reason being, had the employee been present, he/she would have been paid a gross salary of 11,500, which is outside the ceiling of 10,000.
Paid concept:
An employee gets a gross salary of 9,800 per month. Suppose on a particular month the employee draws a gross salary of 8,000 due to leave without wages. In such a case, the employee's ESI contribution will be paid on 8,000 and not on 9,800, as the gross salary paid for that month is 8,000.
Regards