Calculating Days and Deductions for Piece-Rate Employees: How Do You Manage It?

We have employees working on piece-rated assignments. How do we calculate the number of days and PF & ESIC deductions on the piece wages earned? Kindly suggest suitable solutions for this.

Thanks in advance.

Regards,
K. Saikishore

If I am not wrong, you have to follow the below procedure:

If you have piece-rated employees, it means you are paying them on a per-piece basis and raising a bill based on the total pieces produced in a month. On this bill, 60% will be the labor charge, and from this 60%, you have to deduct PF and ESI as per the rules.

Regards,
Rajeev Dixit

Thank you for your message. Here, we are facing an issue with calculating the number of days worked. When uploading online, we need to display the working days for ESI & PF. Our employees work based on targets. Each employee must complete 2000 records, for which we pay 2 rupees per record. The employee may achieve the target in a week or a month. Wages are paid to them only at the end of each month through payroll processing.

Best regards,
Rajeev

Dear [Email Removed For Privacy Reasons], Please click Piece Rate Systems for the ESI and PF of piece-rated employees. The monthly earnings must be considered.

EPF: If an employee earns Rs. 6500 or below, the exempted limit of Rs. 6500/-, then he can be enrolled for PF. Moreover, if the monthly earnings increase above the exempted limit, he should still be a member of PF.

ESI: If an employee's earnings fall below the exempted limit of Rs. 15000/-, then he is covered by ESIC under the ESI scheme. In case of any increase in his monthly earnings above the limit, he is then not required to be an ESI IP. You can calculate as follows: [Wages earned during a complete wage period / the number of days for which the employee worked and multiply the product by 26]

Thank you.

Dear Sharmila Das, can you please explain the below condition? An employee is given a target of completing 2000 records for Rs. 2 each. One employee has completed the target in 25 days and earned Rs. 4000. The second employee has completed the target in 10 days and also earned Rs. 4000. So, how many days should be considered in both cases? Please guide.

Regards,
K. Saikishroe

The calculation always depends on the wage period and wage amount acquired for piece-rated employees at the end of each month, regardless of the target. The actual days considered should be 25 and 10 respectively. For instance:

2000 * 2 = 4000 (wage earned) / 25 = 160 Rs. for those 25 days. 160 * 26 actual days = 4160/- will be his wage earned for that month.

Similarly,

2000 * 2 = 4000 / 10 = 400 Rs. for 10 days. 400 * 26 = 10400/- will be the wages earned for that month.

In such a case, while filing monthly contributions in ESIC online, do we need to show as below:

Employee Details for ESIC Contributions

Employee one: Number of days worked is 25 and wages earned ₹4,160/-

Employee two: Number of days worked is 10 and wages earned ₹10,400/-

Regards,
K. Saikishore

Sec. 6 of the P.F Act states that the contribution shall be paid on the basic wages + dearness allowance + retaining allowance, if any + cash value of food concession, if any. Sub-Para (3) of Para 29 of the P.F Scheme 1952 specifies that the contribution shall be paid on the wages as mentioned above, drawn by an employee during the month, whether paid on a daily, weekly, fortnightly, or monthly basis. These provisions clarify that the contribution shall be calculated on the total wages paid by the employer in a month, subject to the wage cap of Rs. 6500/- per month.

I have noticed that although you have been paying wages to the employees at a piece rate, you are paying them at the end of the month. The wages drawn by each employee you mentioned in your example for a month will amount to Rs. 4000/- only. Therefore, in my opinion, the contribution in both cases will only be paid on Rs. 4000/- per month. The P.F Act does not allow for the calculation of contributions based on the earning capacity of an employee in a month but rather on the wages actually received by them in a month. Members can correct me if I am mistaken by citing the relevant provisions.

Regards,
B. Saikumar
Mumbai.

For the Sai Kishore firm case, how do I calculate the number of days for PF online returns?

Regards

Dear Prasad, I have only interpreted the provisions of the P.F. Scheme to avoid confusion in the calculation of the contribution. If the contribution is calculated based on the assumption that each employee would have earned in a month had he worked for 30 days on the daily rate of his earnings calculated by dividing his total earnings by the number of days, it would be only a hypothetical wage and not a wage earned by him while on duty within the meaning of Sec. 2(b) of the P.F. Act. Thus, it does not fit into the provisions of the Act, and it would also result in discrimination as the rate of contributions for the two employees would be different, even though they received equal wages in a month.

Regarding the Online Procedure

Regarding the doubt about mentioning the number of days in the online procedure in the example given by Saikishore, I am not acquainted with the online procedure. Let us wait for other members to come up with solutions for reconciling the substantive provisions of the Act and the procedure.

Regards,
B. Saikumar

HR & Labour Law Procedure
Mumbai

Understanding Statutory Dues on Piece Rate

There are provisions in most acts about how to pay statutory dues on a piece rate. Mostly, there should not be a problem. The number of days here will be more academic. The impact will be more on other requirements like permanency (240 days rule).

Please do not forget that the law also requires that those being paid on a piece rate should receive minimum wages. So, you should set a daily rate as per minimum wages as the basic + DA, and the balance as variable pay/incentive, etc. Then, the number of days must be properly accounted for in the muster.

I will wait for others to comment on whether this is a sensible thing to do.

Suggestion for Managing Piece-Rate Worker Payments

I have gone through the query, and I find that the solution suggested by Mr. Rajeev is accurate for ESIC but not for EPF. However, please note that when the same amount is deducted on bills, it can never be a simple task. Piece-rate workers never allow you to do so.

One suggestion I have is to convert the piece-rate payment into a salary rate. For instance, mark the salary of all piece-rate workers above Rs. 15,000/-, such as Rs. 15,050/- or Rs. 15,100/-, and keep the basic above Rs. 6500/-. This way, your EPF & ESIC liability should be saved, and rather than booking piece-rate in the balance sheet, which increases your tax liability, you can save by booking the same amount in the salary & wages head. Up to Rs. Two Lac p.a, there is no tax liability.

Please review and consider the above suggestions.

Thanks & Regards,
Sumit Kumar Saxena