Dear Joshi, PFA attached is the word document downloaded from the ESIC website giving the meaning of wages and what other parts of salary will be covered under ESI. Hope this will help you out.
Venkatesh B
Wages
Washing Allowance:
It is a sum paid to defray special expenses entailed by the nature of the employment, and as such, this amount does not amount to wages. (In lieu of old instructions issued vide Memo No. Ins. III/2/1/65 dt. 8.2.1967)
Suspension Allowance/Subsistence Allowance
During the suspension period, the employee is not allowed to actually work and is not given full remuneration, but the permissible subsistence allowance is paid to the employee by way of remuneration for remaining attached to the services of the employer as per the relevant service regulations governing his contract of service. Therefore, the subsistence allowance is part of wages as defined under Sec.2(22) of the ESI Act, and consequently, on the amount of subsistence allowance paid to the suspended employee, contribution is payable.
The Supreme Court has also held in the case of RD, ESIC Vs. M/s. Popular Automobiles, etc., in its judgment dt. 29.9.97 in Civil appeal no. 3850 of 1993 that 'suspension/subsistence allowance is wage and contribution is payable under Sec.2(22) on the said amount'. (In lieu of earlier instructions issued vide Memo No.3(2)-1/67 dt. 3.6.67 & letter No. Ins.III(2)-2/71 dt. 10.8.1971)
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 the employee to do the overtime work after the working hours. When the employee does overtime work, it amounts to acceptance for the same; hence there emerges a concluded implied contract between the employer and the employee. Both the remuneration received during the working hours and overtime constitute 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 wages 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 judgment 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. 31.5.68).
Annual Bonus:
Bonus paid to the employees could not be treated as wages for the purpose of charging of contribution under Sec.2(22), provided the periodicity of the payment is more than 2 months. The said issue was also considered in the meeting of the ESI Corporation held on 19.12.1968, and the Corporation agreed to the recommendations of the Standing Committee that bonus may not be treated as wages. Hence, no contribution is payable on annual bonus.
(Earlier instructions were issued vide memo No. Ins.III/2(2)-2/67 dt. 8.2.1967).
Incentive Bonus:
As per the decision of the Supreme Court delivered on 8.3.2000 in the case of M/s. Whirlpool India Ltd. Vs. ESIC in civil appeal No.1903 of 2000, additional remuneration to become wages has to be paid at intervals not exceeding two months as distinguished from being payable. Thus, there has to be actual payment, and the payment of production incentive does not fall either under the 1st part or last part of the definition of the term wages as defined in Sec.2(22) of the Act, hence no contribution is payable on the incentive bonus, provided the periodicity of payment is more than 2 months. (Earlier instructions were issued by this office vide Memo No.T-11/13/53/19-84-Ins.IV dt. 19.9.84, Memo No. Ins.III-2(2)/2/69 dt,. 26.12.73, Memo No.T-11/13/54/18/82-Ins.IV dt. 14.7.82 & Memo No.D/Ins.5(5)/68 dt. 18.9.88.)
Production Bonus:
Production Bonus, like incentive bonus, is paid to the workers as additional remuneration, and hence like incentive bonus, such additional remuneration in order to become wages has to be paid at intervals not exceeding 2 months as distinguished from being payable. Thus, there has to be actual payment, and hence no contribution is payable, provided periodicity of the payment is more than 2 months. (Earlier instructions issued vide letter dated 4(2)/13/74-Ins.IV dated 2.9.85)
Inam/Ex-Gratia Payment:
Inam represents a payment made by the employer to any employee as a reward for the services rendered by him for which he is/was not under obligation to render the same under the contract of service which is expressed or implied but does not include the payment which has been made to an employee in fulfillment of contract of service. This may include ex-gratia payment.
Where Inam is being paid for special skill or higher responsibilities/additional duties, it may be taken as remuneration and contribution is payable.
Where the employer has introduced the scheme of Inam but according to terms and conditions, the employer has no right to withdraw it or revise it, the same may be treated as wages and contribution is payable.
Where the employer has introduced the scheme of Inam and he has the right to revise or withdraw it at his discretion, the payment of Inam under such scheme may not be treated as wages and contribution is not payable provided the payment is made at an interval exceeding two months.
Where there is no scheme of Inam in writing but still the employer might be making payment under the head Inam on the basis of some understanding between the parties, in such cases, the nature of payment and its periodicity may be ascertained and whether payment of Inam is an ex-gratia payment which is not covered by the contract of service. In case the periodicity is more than 2 months, no contribution may be charged.
(Last instructions were issued vide letter No.D-Ins.5(5)/68 dated 21.2.1975).
Wages Paid During Layoff:
During the period of layoff, though the employee is not given actual work and is also not given full remuneration, certain wages are paid to the employee by way of remuneration for remaining attached to the factory/establishment of the employer. Therefore, such payments paid for the period of layoff are also wages for the purpose of Sec.2(22) of the ESI Act, and hence contribution is payable on such payments.
(Earlier instructions were issued in 1968).
Annual Commission
Sales Commission would fall within the 3rd category of wages as defined under the Act as additional remuneration, and there has to be actual payment as the word used is paid and not payable, at intervals not exceeding two months. The question as to why the period of 2 months is fixed was debated in the Supreme Court in the case of Handloom House, Ernakulam Vs. RD, ESIC in Civil Appeal No.2521 of 1999 when it was held that no employer shall have the permission to draw the payment of contribution on the premise that annual payments have to be worked out. Normally, the wage period is one month, but the Parliament would have thought that such "wage period" may be extended a little more, but no employer shall make it longer than two months. This could be the reason for fixing a period of two months as the maximum period for counting the additional remuneration has to make it part of 'wage' under the Act. Therefore, the annual commission is excluded from the definition of the wages, and hence no contribution is payable on the annual commission. (Earlier instructions were issued vide Hqrs.letter No. Ins.III(2)-2/71 dated 10.8.71).
House Rent Allowance
House Rent Allowance is a wage in cases where it is being paid. A notional amount of house rent cannot be presumed as wages for deciding the coverage. In cases where an employee is being paid house rent allowance, the same will be included both for coverage and contribution. In cases where the staff quarters have been allotted, the amount of salary and wages paid will count for coverage and contribution, and no notional house rent allowance is to be presumed in such cases.
In the cases of Braithwaite & Co. Vs. ESIC and M/s. Harihar Polyfibres Vs. ESIC, Bangalore, the Supreme Court has also held that house rent allowance is a 'wage' under Sec.2(22) of the ESI Act. (Earlier instructions were issued vide memo No.T-11/13/11/15-Ins.III dt. 28.9.75, No. Ins.III(2)/15/15/74-Ins.Desk.I dated Dec.,76, No.T-11/13/53/19-84/Ins.IV dt. 19.9.84 & No.D.Ins.II/11/3087/303 dated 1.3.1985).
Night Shift/Heat/Gas & Dust Allowance:
It is an additional remuneration paid to the employee for performing duty at night time during the hours of darkness. This amount is paid by way of incentive under the scheme of settlement entered into between the Management and its workmen and hence are wages within the meaning of Sec.2(22) of the ESI Act. This view was observed by the Full Bench of Karnataka High Court in the case of NGEF Ltd. Vs. Dy. Regional Director, ESIC, Bangalore. The Supreme Court in the case of M/s. Harihar Polyfibers Vs. RD ESIC, Bangalore has also held the same view. Hence, Night Shift Allowance, Heat, Gas & Dust allowance are wages under Sec.2(22) of the ESI Act, and contribution is payable on the said amount paid by the employer to the employees.
(Earlier instructions were issued vide Memo No.T-11/13/53/19/84-Ins.IV dated 19.9.94).
Conveyance Allowance
Conveyance allowance is paid to the employee to compensate the expenses incurred by the employees on travelling, etc. The travelling allowance or value of any travelling concession is also being paid to the employees in the nature of conveyance allowance, which is neither wages for the purpose of coverage of employees under Sec.2(9), nor it is treated as wages for the payment of contribution under Section 2(22) of the ESI Act.
In the case M/s. Hyderabad Asbestos Cement Products Vs. ESIC, Punjab & Haryana High Court, Chandigarh, as well in the case of M/s. Harihar Polyfibres, the Supreme Court has held that conveyance allowance is not a wage under Section 2(22) of the ESI Act. (Earlier instructions were issued by this office vide No.P.11/13/97-Ins.IV dated 27.1.97.)
Service Charges
Service charges are collected by the management of the hotel on behalf of their employees in lieu of direct tips and the same is paid to their employees at a later date.
Such amount collected as 'service charges' will not constitute wages under Sec.2(22) of the ESI Act. In the case of ESIC Vs. M/s. Rambagh Palace Hotel, Jaipur, the High Court of Jaipur has held that 'service charges' are not wages under Section 2(22) of the ESI Act. This verdict of the High Court of Jaipur was accepted in the ESIC, and hence no contribution is payable on 'service charges. (Earlier instructions were issued vide letter No.P-12/11/4/79-Ins.Desk.I dt. 18.9.79)
Medical Allowance
The employees working in factories/establishments are being provided medical services in kind by the employer, but in certain factories/establishments, instead of providing medical services in kind, the amount spent by the employees on medical care is reimbursed while in some other organizations, employees are being paid monthly cash allowance in lieu of medical aid/reimbursement of medical expenses. Where such payments are made by the employer in lieu of the medical benefit, the same are to be treated as wages under Sec.2(22) of the ESI Act, and the contribution is chargeable. (Earlier instruction was issued vide letter No. Ins.5(5)/68-Ins.III dt. 21.8.71 & Ins.III/2(2)2/68 dated 24.6.71)
Newspaper Allowance
In certain factories/establishments, the employees are reimbursed the cost of Newspapers, while in some other factories/establishments, the employees are paid monthly newspapers allowance instead of reimbursement of the cost of the Newspapers. Where the amount is being paid regularly to the employees by the employer as Newspapers allowance, the same will be treated as wages under Sec.2(22) of the ESI Act, and the contribution is chargeable. However, where the cost of Newspapers is reimbursed to the employees, no contribution is to be charged on such payments.
Education Allowance:
Employees are being paid monthly Education allowance for the children studying in the Schools/Colleges. Where such education allowance is being paid monthly, the same is to be considered as wages under Sec.2(22) of the ESI Act, and the contribution is chargeable on the said amount.
However, in such cases where instead of paying the education allowance on a monthly basis, the amount spent as a fee is reimbursed to the employees and booked under education allowance, in such cases, no contribution is payable.
Drivers' Allowance
In some of the factories/establishments, the officers employed as employees are being paid drivers' allowance per month. This allowance is being paid to enable the officers to appoint a driver at their own level, and such drivers employed are not being paid salary directly by the factories/establishments. Where such allowance is being paid to the employees and the drivers are not engaged by the employees, in such event, the allowance paid as such will be considered as wage under Section 2(22) of the ESI Act, and contribution will be chargeable provided the employee is coverable under the Scheme.
However, where the services of the drivers are being utilized, in such event, the drivers so engaged will be covered as employees, and contribution will be payable on the amount paid to the drivers as salary and booked in the ledgers of the employer under the heading 'Drivers' Allowance'.
Food/Milk/Tiffin/Lunch Allowance:
Each case of payment of Food, Milk, Tiffin, and Lunch Allowance has to be examined on its merits depending on the following conditions under which the allowance is payable:
- Tiffin/Food/Milk/Lunch Allowance paid in cash at a fixed rate irrespective of whether the person is absent or on authorized leave, etc., may be treated as wages.
- Tiffin/Food/Milk/Lunch allowance paid in cash with deduction for leave or absence, etc., may not be treated as wages.
- Tiffin/Food/Milk/Lunch allowance paid in kind, i.e., canteen subsidy/food subsidy, etc., may not be treated as wages.
(Earlier instructions were issued vide letter No.P-11/13/97-Ins.IV dated 2.2.1999)
Gazetted Allowance
Certain factories/establishments are paying gazetted allowance to their employees in lieu of duties performed by them on gazetted holidays. Such gazetted allowance is not a wage for the purpose of Sec.2(9) of the ESI Act. However, it will be a wage for the purpose of Sec.2(22) of the ESI Act, and the contribution is to be recovered on such payments.
Wages and Dearness Allowance for Unsubstituted Holidays:
Such wages and dearness allowance paid to the employees for the unsubstituted holidays are to be treated as wages under Sec.2(22) of the ESI Act, and the contribution is payable. The High Court of Gujarat in the case of ESIC Vs. New Assarw Manufacturing Co. Ltd. held the same view.
Ex-Gratia Payment During Strike for Travelling Expenses
Like conveyance allowance, if any ex-gratia payment is made during the period of strike to some of the employees to incur certain travelling expenses, such amount will neither be considered as a wage under Sec.2(9) nor under Sec.2(22) of the ESI Act, and no contribution is payable on such amount. The High Court of Bombay in the case of ESIC Vs. Willman (India) (P) Ltd. in case No.210 of 1976, held the same view.
Interim Relief:
Interim relief paid to the employees is normally paid when either the wage is under revision or when the payment of Dearness Allowance is delayed due to any reason. Whatsoever may be the case, if the interim relief is paid to the employees by any employer, the same will amount to wages within the meaning of Sec.2(22) of the ESI Act, and contribution is payable thereon.
Saving Scheme
Certain factories/establishments are contributing towards the saving scheme for the welfare of the workers. Such amount paid by the employer as his contribution to the saving scheme will not constitute wages under Sec.2(22) of the ESI Act, and the contribution is not payable. (Earlier instructions were issued vide Memo No.P-12/11/4/77-Ins.IV dt. 15.11.80)
Attendance Bonus
It is a special allowance being paid by certain employers to their employees to discourage the workers from absenting from the job. Any amount paid by the employer to its employees as Attendance Bonus will constitute wages under Sec.2(22) of the ESI Act, and the same opinion was held by the Bombay High Court in the case of ESIC Vs. Indian Dyestuff Industries Ltd. However, the periodicity aspect has to be kept in mind. In case the periodicity is more than 2 months, the same will not constitute wages, and no contribution will be payable as in the case of incentive bonus.
Payment Made to Rickshaw Pullers, Hathrairy Pullers, and Truck Operators (Including Loading & Unloading Charges When the Loaders/Unloaders Are the Employees of the Truck Operators):
Rickshaw pullers, Hathrairy pullers, and Truck Operators (who bring labour with them) no contribution is payable on the amount paid by the employer if the amount paid is a lump sum amount including loading/un-loading charges and no separate wages are paid by the employer.
A similar view was held by the Bombay Division Bench in 1990 in the case of Raisaheb Tekchand, Mohate Mills Vs. R.D. ESIC.
Hamals/Coolies Employed at a Particular Time
Where Hamals & Coolies are employed at a particular place and a particular time, outside the premises of the factory/establishment to perform a specific job on the spot, in such cases, no contribution is payable on the amount paid to such Coolies/Hamals. However, the contribution is payable on the amount paid to the coolies and hamals for services rendered within the premises of the employer.
The Bombay High Court in the case of Parley Bottling Co. Ltd. VS. ESIC, Bombay 1989, and the Supreme Court in the case of ESIC VS. Premier Clay Products, have held this view.
Short Period Contract for Service – Electrician, Carpenters, Mechanics, Plumbers, etc./Repair Work Done on Shop
In such cases, also contribution is payable on the amount paid by the Employer if the services are rendered within the premises. This view was also held by the Punjab and Haryana High Court vide its judgment dated 29.3.84 in the case of Modern Equipment Vs. ESIC in Civil Appeal No.3218 of 1989.
Expenditure on Servicing of Machines
No contribution is payable on the servicing of machines where the job awarded is to the Engineer, and instead of a contract of service, there is a contract for service for servicing of machines.
Expenditure on Annual/Periodical Service Contract
In the factories/establishments, a certain amount is being paid by the employer to the supplier of machines or to the firms of repute for the annual/periodical servicing of the machines, and for such purposes, the contract is awarded. In such cases, no contribution is payable on the amount paid for annual/periodical service contracts.
Commission to Dealers/Agents:
Where dealers/agents are appointed by the employers but no regular wages are paid, and it is not obligatory on the part of such dealers/agents to attend to the factories/establishments, and they are paid commission only on the quantum of sales, in such cases, the amount paid by the employer as commission/dealership does not constitute wage under Section 2(22) of the ESI Act, and hence no contribution is payable.
Service Contract
Amount paid to an organization for maintenance of Machinery/Equipments as part of a service contract will not attract ESI contribution.
Payment Made to Labour Consultants, Lawyers, Engineers, Counsels, Chartered Accountants:
The amount paid by the employer to labour consultants, lawyers, engineers, counsels, chartered accountants does not constitute a wage as per provisions under Section 2(22) of the ESI Act, and hence no contribution is payable.
The following items will form part of the wage both under Section 2(9) i.e., for considering the employee for the purpose of coverage and Section 2(22) of the ESI Act for the purpose of charging of contribution:
- Matinee allowance which is being paid to employees in Cinema Houses.
- Shift allowance paid to employees who work on shift duty at odd shifts.
- Location allowance paid, in addition to Dearness Allowance, to meet the high house rent.
- Compensatory allowance.
- Cash handling allowance paid to Cashier.
- Supervisory Allowance.
- Additional pay paid to training staff.
- Charge allowance
- Steno/Typist allowance
- Plant allowance
- Honorarium for looking after the hospital/dispensary
- Computer allowance
- Gestetner/Photocopier/Printer allowance
- Personnel/Special allowance
- Machine allowance
- Canvassing allowance
- First-aid allowance
- Personnel allowance – Pay over and above the basic wage and Dearness allowance for skill, efficiency, or past good records.
- Area allowance - given to employees living in a particular area to meet the high cost of living in that area.
- Ex-gratia payment if payment is made within an interval of two months.
The following items will not form part of the wage either under Section 2(9) or under Section 2(22) of the ESI Act:
- Payment made on account of un-availed leave at the time of discharge.
- Commission on advertisement secured for Newspapers, if not paid to the regular employee.
- Fuel allowance/Petrol allowance
- Entertainment allowance
- Shoes allowance
- Payment made on account of gratuity on discharge/retirement.
- Payment made on encashment of leave.
Regards,