Is Overtime Allowance Added In Gross Salary?

Hey All,

I am Saloni, and I am handling the Human Resource Department for my restaurant. I am very new to compliance and benefits. Our chef and service assistants will be working 12 hours (9 legal and 3 hours overtime), and I have divided their salary accordingly. I am confused about one thing - I have added overtime allowance (double the normal per hour pay rate) in the total salary, and it's coming out to be Rs. 18,000 per month, which means employees are exempted from ESIC.

My question is: do we have to add overtime to the gross salary, or should the gross salary be calculated without overtime? Please check the breakup below:

Direct
Basic 7,199
HRA @ 50% 3,599.64 (Non-Taxable, 50% as we are in Chennai)
Conveyance 800 (Non-Taxable)
Washing Allowance 1,000 (Non-Taxable)
Overtime Allowance 4,799.52
Lunch Allowance 602

Total Gross 18,000.44

Any expert insights will be of great help.

OT wages are part of the earnings and should be included in the payslip. If the person is in the tax net, their OT wages will be considered taxable income.

Pon

Thank you so much, sir.

Please, can you clarify for me that after adding overtime allowance as mentioned in my question, the gross salary is coming out to be 18,000, and if I take overtime out, it's 13,000. So, should the employee be covered under ESIC or not?

Thank you,
Saloni M.

You have to deduct ESI contribution from OT wages and remit it along with the corresponding Employer's contribution. However, OT wages shall not be reckoned as wages for excluding the Chef from the ESI scheme.

Varghese Mathew
9961266966

Dear Saloni,
Please refer section 2 (22) of ESIC Act, wherein it is been clearly mentioned that for calculating rate of contribution overtime will be include on its wages but wherein finding applicability / eligibility overtime won’t be included on its wages. (Though overtime is never been considered as a fixed wages)
Now in your case employee is earning gross wages of Rs. 13200/- which is less than 15000/- which shows that ESIC is applicable and the rate of contribution will be deducted on its total Gross of Rs. 18000/- for the same.
Regards,
Janardan

Dear Saloni,

The payment of overtime wages is nothing but the extra work done by the employee and paid at double the rate of wage as per statutory. Overtime wages should be shown in the pay sheet as other cash payment or overtime wages, which will not attract any PF deduction, bonus, and gratuity on overtime wages. However, these OT wages will be considered for IT provisions.

Adoni Suguresh
Sr. Executive (Pers, Admin & Ind. Rels) Rtd
Labour Laws Consultant

Hey,

Thank you all for the contribution. I understood the concept, and finally, I have come up with the salary breakup.

CTC WORKINGS
Components PM
Direct
Basic 7,199
HRA @ 50% 3,599.64
Conveyance 800
Washing Allow 785
Overtime Allowance 4,799.52

Total 17,183

Benefits
ESIC @ 4.75% 816.2134

Total Gross 17,999.653

Please let me know if it's fine. Is there any senior member who can provide me with their email id so that I can double-check my decisions. Thank you so much.

Saloni M. [Login to view]

Dear Saloni,

Please find the details below. I hope this will clarify your doubts regarding the Payslip with the salary breakdown as follows:

Earnings
Basic: 7199
HRD: 3599
Conv: 800
Washing Allow: 785
Gross Salary: 12383
OT: 4799.52
Gross Earnings: 17182.52

Deductions
PF: 863.88
ESI: 216.7025
Ded: 1080.5825

Net Salary: 16101.9375

Thank you.

Please consider the following regarding the ESI deductions from gross earnings at 1.75% from the employee.

In the payslip, the salary breakdown is as follows:

Earnings
Basic: 7199
HRA: 3599
Conv: 800
Washing Allow: 785
Gross Salary: 12383
OT: 4799.52
Gross Earnings: 17182.52

Deductions
PF: 863.88
ESI: 300.6941

Total Deductions: 1164.5741

Net Salary: 16017.9459

Mr. Sugunbars,

How can you deduct the PF 863.88? It should be 780. Those B+DA more than 6500 is the maximum deduction. You can't deduct that amount, and employers will be 886.

Mr. Anonymous, the limit is only for the employer's contribution of PF and not for the employee's. The employee can contribute 12% of their salary (Basic+DA) as PF, whereas the employer should contribute 780. The employer can also choose to contribute an equal amount as the employee.

Hello everyone,

Thank you so much for the help. I have only 14 employees, so PF does not apply to my company as we are fewer than 20 in number. Therefore, the only deduction will be ESIC.

Please correct me if I am wrong.

Saloni M.

There is nothing in the EPF Act against an employer contributing for wages exceeding Rs 6500. It is the employer's capacity and discretion that matters.

Varghese Mathew

Dear Saloni,

EPF numbers change to 10 or more employees. Kindly visit EPF to get the recent amendment.

Regarding your ESI query, you have to capture ESI for the said salary (i.e., 18,000).

Regards,
John N

Dear Saloni,

Your restaurant in Chennai, being a catering establishment, is subject to the Tamil Nadu Catering Establishments Act, 1958. I hope that you have registered the establishment under the Act within 30 days of its commencement and obtained a registration certificate based on the maximum number of employees likely to be employed on any day during the calendar year. Additionally, please ensure you are maintaining the various registers and notices as required by the Rules.

I would like to bring to your attention Section 7(2) of the Act. According to this section, the total number of hours worked on any day should not exceed 10 hours, which includes only one hour of overtime. Moreover, the total overtime hours should not exceed 54 in any quarter.

Kind regards, [Your Name]