Should ESI Be Deducted from Incentives Added to Basic Salary? Seeking Clarity

Dear seniors,

We are providing incentives to our employees. However, the said incentive is being paid on a monthly basis. Please let me know whether the incentive should be added to the basic salary for ESI deduction.

For example:
Basic salary: 9000
Incentive: 2000

Please clarify whether ESI should be deducted on 9000 or 11000 as the gross salary.

Thank you.

Which type of incentive do you provide for your employees for ESI? The paragraph below may help you. As per my concern, if you add an incentive to the basic salary, you will have to pay PF contribution on the incentive.

Thanks,

Manish

INCENTIVE BONUS:

As per the decision of the Supreme Court delivered on 8.3.2000 in the case of M/s. Whirlpool India Ltd. Vs. ESIC in civil appeal No.1903 of 2000, additional remuneration to become wages has to be paid at intervals not exceeding two months as distinguished from being payable. Thus, there has to be actual payment, and the payment of production incentive does not fall under either the first part or last part of the definition of the term wages as defined in Sec.2(22) of the Act. Hence, no contribution is payable on the incentive bonus, provided the periodicity of payment is more than 2 months.

(Earlier instructions were issued by this office vide Memo No. T-11/13/53/19-84-Ins.IV dt. 19.9.84, Memo No. Ins.III-2(2)/2/69 dt. 26.12.73, Memo No. T-11/13/54/18/82-Ins.IV dt. 14.7.82 & Memo No. D/Ins.5(5)/68 dt. 18.9.88.)

PRODUCTION BONUS:

Production Bonus, like incentive bonus, is paid to the workers as additional remuneration. Hence, such additional remuneration, in order to become wages, has to be paid at intervals not exceeding 2 months as distinguished from being payable. Thus, there has to be actual payment, and hence no contribution is payable, provided the periodicity of the payment is more than 2 months.

(Earlier instructions issued vide letter dated 4(2)/13/74-Ins.IV dated 2.9.85)

Thanks,

Manish

Hello, Manish sir,

Please explain if we provide a two-month combined incentive to an employee, then there is no need to contribute ESI on the incentive. Is this correct?