Whether Leave Encashment Is To Be Consider For ESI Deduction

Pf is computed on basic and DA only
For ESIC it's on gross wages.
If incentives are paid quarterly it is not a part of gross monthly wages and therefore again will not be included
However, if incentives are steady and a standard rate (Not variable) or if it is found to be based on hours worked (Overtime) then it would be included for ESIC.

Dear Sh. Saswata Banerjee ji, thanks for your remarks as on prepage. I feel that when a contractor worker is absent, and if leave of any kind is sanctioned for that period, it will amount to "leave with wages" on which contribution is payable as per said Act. Owners of the units including contractors are free to maintain the records, in which way they want. However, while posting our views in this citeHR, I feel that it will be more better if our views are based on some provisions of law or instructions issued by the appropriate authorities. Again thanks.

Harsh,
Let us not deny the reality simply because the law says otherwise. If people obeyed the law, our forum would not even been needed perhaps :)
In many cases, contractors are deducting salary for EVERY absence of workers. And instead they are paying wages for 1.5 days extra per month to take care of "encashment of leave wages". That is not sanctioned leave. How the records are maintained is not going to change that. In fact that records may be falsified, which makes it only worse.

Not necessary for deduction of ESI in Leave Encashment payment.
Not necessary for deduction of ESI & PF as these amounts not being in monthly salary.

Devesh
Some additional information related to your original question and the subsequent thread ...
I just found at a clients place. the ESIC officials have specifically asked for the records related to computation of production incentives, and have been tallying that with in and out records, and asking for the incentive scheme details, how it was communicated etc.
So, if you are giving production incentive, the ESIC guys may actually check the records to trace your working and penalise you for trying to avoid ESIC by calling overtime as production incentive. So be careful of how you structure your salary. The penalty and persecution is mostly not worth the ESIC cost saved