ESI Contributions and Incentives: How Should We Calculate for Different Salary Scenarios?

Dear seniors, we have approximately 200 employees, and a few are covered under ESI. We pay monthly incentives/bonuses based on their performance. We are currently paying salary and incentives together.

Case ONE: If the gross salary is ₹8,000 PM and the performance-linked incentive varies from ₹500 to ₹2,000 PM. Should we pay ESI contribution on ₹8,000 or ₹8,000 plus incentives? We are currently paying incentives every month but can also pay them every two months.

Case TWO: If the gross salary is ₹14,000 PM and the incentive is ₹3,000 - ₹6,000 PM, can we show the whole earning above ₹15,000 and not need ESI contribution?

Allowances Exempt from ESI Contribution: What are the allowances on which ESI contribution is not applied, like washing allowance?

Performance Linked Incentive and ESI Contribution

1. Performance Linked Incentive, or whether you call it by any name such as incentive, production incentive, Inam, attendance bonus, etc., are all considered wages, and contribution is payable.

Case One & Case Two: ESI Contribution on Incentives

2. The position, in respect of your above cases, in my opinion, may be as follows:
Case One & Case Two: Contribution is required to be paid on Rs. 8000 plus the amount of incentive. On the basis of incentive, you can exempt any employee from ESI deduction provided that their total wages, including incentive, exceed Rs. 15,000 per month. If during any contribution period, the total wages of the employee become less than Rs. 15,000, then from that very month, the employee will again be coverable till the close of such contribution period even if their total wages for the next balance months in the contribution period may exceed the above coverable limit.

Washing Allowance as Wages

3. Washing Allowance is coverable as wages if the amount is paid to employees without any actual reference to the provision of liveries or uniforms. If the employees are not required to bear any specific uniforms or liveries and the amount is paid every month, in my opinion, it is definitely "wages" as defined under the said Act.

Consultation with ESIC Officials

4. In case of any doubt, I suggest you discuss the issue with the appropriate officer of ESIC to which your unit is attached, such as the Social Security Officer or Director at the Regional Office level.