Confused About Gross Salary: Should Overtime Be Included or Not? Seeking Expert Advice

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.

Question on Gross Salary Calculation

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.

Overtime Wages and Payslip Inclusion

Overtime (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.

Regards,
Pon

Thank you so much, sir. Please, can you clarify for me that after adding the 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.

ESI Contribution on Overtime Wages

You have to deduct the ESI contribution from overtime (OT) wages and remit it along with the corresponding employer's contribution. However, OT wages shall not be considered as wages for excluding the chef from the ESI scheme.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Please refer to section 2 (22) of the ESIC Act, wherein it is clearly mentioned that for calculating the rate of contribution, overtime will be included in its wages. However, when determining applicability or eligibility, overtime won’t be included in its wages. (Though overtime is never considered as fixed wages.)

Now, in your case, the employee is earning gross wages of Rs. 13,200/-, which is less than Rs. 15,000/-. This shows that ESIC is applicable, and the rate of contribution will be deducted on the total gross of Rs. 18,000/- for the same.

Regards,
Janardan

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 requirements. 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.

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

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 Allowance: 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.

Regards,
Saloni M. [Email Removed For Privacy Reasons]

Salary Breakdown Details

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

Earnings
• Basic: 7,199
• HRD: 3,599
• Conv: 800
• Washing Allow: 785
• Gross Salary: 12,383
• OT: 4,799.52
• Gross Earnings: 17,182.52

Deductions
• PF: 863.88
• ESI: 216.7025
• Ded: 1,080.5825

Net Salary
• 16,101.9375

Thank you.

Regards

Considerations for ESI Deductions from Gross Earnings

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

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

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.

Working Hours and Overtime Regulations

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]