If you are paying production-based incentives on a monthly basis, ESI contribution is obviously required to be deducted from the salary of the insured person. The employer is also required to pay their own contribution along with the contribution of the employees. If this production-based incentive is being paid at intervals and if it is paid at intervals of 2 months or more, then ESI contribution will not be required to be deducted and paid on the production-based incentive. To save the hard-earned money of the employees and the employer, you are required to pay it at least at intervals of 2 months.
Provident Fund Contribution
As far as the question of Provident Fund contribution is concerned, it is further submitted that if you are paying a monthly-based production incentive, it is subject to Provident Fund contribution and PF will be deducted. In a case titled RPFC vs. Daily Partap, the Honorable Supreme Court of India has held that if a production incentive is being given on a monthly basis, Provident Fund contribution is chargeable on that amount.
If it is being paid as an overtime amount, no Provident Fund contribution is required to be paid on this amount.
Thanks.
Regards,
R. B. Yadav
Advocate