How to Handle ESI Contributions on Incentives Paid Monthly or Bi-Monthly?

Dear Seniors,

Our company pays incentives based on sales/performance to our employees. I understand from various experts' postings that ESI contribution shall be applicable on the incentive amount if the incentive is paid monthly. It will not be applicable if it is paid every three months. My questions are:

1. What if the incentive is paid every two months or 65 days? We wish to pay as soon as possible.

2. What if we pay some amount every month as a loan (say a round figure of 2,000/-) and finally adjust that loan against the actual incentive paid after three months?

3. Is there any way by which we can pay the incentive every month or every two months but need not pay extra contribution on the incentive?

Regards,
Ajay Agarwal

Dear Ajay,

ESI is applicable if you pay those incentives once in two months. If you engage in such practices, it will eventually be identified in the audit report. Consequently, the authorities may impose a substantial liability along with interest. Please consult with your auditor to address this matter.

Thank you.