Navigating ESI Contributions: How Do Sales Incentives Affect Eligibility and Calculations?

Dear Members, I know this topic has been discussed quite often, but I have a few very specific questions. I would appreciate it if someone could help me with them:

Understanding ESI Contributions

I understand that the wage limit (as of Nov 2013) for coverage under the ESI Act is Rs 15,000 (Rupees Fifteen Thousand) per month, with the Employer Contribution at 4.75% and the Employee Contribution at 1.75%.

1. The ESI calculation is on what components of the CTC?

2. We have a sales team for whom the Sales Incentive component is almost 50% of the CTC. Can this component be included while considering ESI eligibility? In that case, will we have to include the Incentive part while calculating the ESI payable?

3. How do eligibility and ESI calculation get affected if the employees underperform and do not earn the Incentive?

Thanks in advance.

Incentives and Allowances Under the ESI Act

1. Incentives or allowances, whether you call them "sales incentives" or by any other names, if paid or payable to an employee as per the terms of the contract of employment, whether express or implied, are part of wages as defined under section 2(22) of the ESI Act, 1948.

2. The ESI Act, 1948, and the rules/regulations framed thereunder are not concerned with "underperformance" by any employee or salesman. The only relevant point is the amount of wages, including sales incentives or any allowance, on which a contribution is required to be paid.

3. I suggest that you write to the appropriate office of ESIC, to which your unit is attached, to get the issue settled and ask for their decision in the matter. This will help prevent any conflicting decisions and avoid any recoveries due to non-payment of contributions under the ESI Act on such sales incentives by the establishment.