Is It Mandatory to Deduct PF and ESI from Overtime Pay? Seeking Clarity on Rules

Hi Mathangi,

Please let me know if it is compulsory to deduct the PF and ESI amounts paid through OT. Is there any rule for deducting this amount?

Please help me.

Regards,
Mathangi S.

Corrected:

OT does not attract PF but will attract for ESI, Mathangi. You will have hundreds of discussions and postings in citehr with articles and supporting details. Just search. - ukmitra

Hi Mathangi,

PF deduction is applicable only on basic and DA, and not on any other allowances. OT amount will not attract PF deduction, but ESI will be applicable on OT.

Thank you.

Senior,

Please suggest what will happen if an employee is out of ESIC coverage?

Regards,
HS Deshwal

Hi,

If an employee is out of ESI coverage, the ESI deduction question does not arise.

Thanks & Regards,

VADLAMANI SR

ESI calculation includes OT amount, but PF calculation is done only on Basic and DA, not on the overtime amount.

If an employee is out of ESIC coverage, to safeguard the company, you can take a W.C. policy with any insurance agencies.

Regards,
S. Gopu

Dear Friends,

We have Security Guards at branches who are supposed to work 6 days a week and avail a day's weekly off. The Bank is providing 1/6 of the gross wages to the agency for each guard for the weekly off. The agencies have deployed the same guard for 30 days in a month and paid him his wage component, retaining the 4 days of ESIC & EPF with themselves. The agency has only deposited 26 days of ESIC & EPF. Now the Security Guards are claiming the ESIC and EPF amount to be given to them, which the bank has paid and held with the Agency. Requesting views from the members on this issue.

Capt. Saibal Ghosh
Asst. Vice President- Admin
Axis Bank Ltd, Kolkata

This is in reference to the question raised by Shri. H S Deshwal:

Suppose an employee's gross earned salary for a particular month is Rs. 9500. In the same month, he also earns Rs. 1000 as overtime (OT), which is not a part of the payroll's earned gross. Consequently, his gross total emoluments become Rs. 10500. This indicates that he has exceeded the ESI threshold limit of Rs. 10000, and therefore, ESI may not be deducted. However, this notion is incorrect because for the "purpose of coverage" of an employee under ESI, OT should not be considered when determining the coverage eligibility based on gross salary. Nevertheless, for "deduction and remittance purposes," OT must be included. This illustrates the subtle difference between the terms "Coverage purpose" and "contribution purpose."

Best wishes.

Hi there,

Everyone has given the right answer. PF deduction is not applicable on OT, but ESI deduction is applicable. There are many court judgments to support this fact.

Thank you.

Dear All,

Thank you all for your valuable replies.

Also, please clarify that if anyone is receiving a salary less than Rs. 10000, we deduct the ESI from their salary. In case they receive a salary greater than Rs. 10000 (including overtime), is there any compulsion to pay the ESI? Sometimes, the overtime amount will vary every month.

Please provide clarification on this matter.

Regards,
Mathangi S.

I do not agree with the above suggestion. As per the provisions of Sec. 6 of PF Act, it is leviable on Basic wages, Dearness Allowance, and Retaining Allowance. Basic wage is defined under section 2(b) of the PF Act. According to that, basic wage means all emoluments earned by an employee while on duty or on leave with wages but does not include house rent allowance, overtime allowance, bonus, commission, or any other similar allowance payable to an employee. Hence, all the allowances are not exempted. Nowadays, the PF Inspectors are insisting on contributions on conveyance allowance, washing allowance, and special allowances also. Please check with the enforcement Officer on the above point.