Does Monthly Sales Incentive Affect ESI Eligibility for Employees?

Dear Seniors,

An employee's fixed gross salary is 19600/-. However, this employee is also receiving variable sales incentives, ranging from 7000 to 15000 per month. Please clarify whether this variable incentive component, paid monthly, will bring this employee under the purview of ESI or not.

Regards,
Kankit

Basic Concept: Incentive as Part of Salary

Whether the incentive component is considered part of the salary depends on how it is accounted for. If it is included in the employee's Form 16, professional tax, pay register, and TDS purposes, then it is part of the salary for ESIC/PF/PT purposes.

If the incentive is given as a sales promotion without considering the employee's name, how is it treated at the employer's end? Under the form, one establishment cannot issue both Form 16 and 16A for a single person. Check the basic facts to categorize it in the appropriate account. Whether it is variable or fixed is not the issue; the issue is the accounting method maintained by the establishment.

All the acts have different meanings for wages in their respective sections. For EPF, the meaning of wages is defined in section 2(b) of the EPF Act, while wages for ESI contribution are defined in section 2(22) of the ESI Act. Therefore, the chargeability of ESI does not depend on factors such as income tax, PT, etc.

Regarding your query, if a sales incentive is being paid monthly, it will attract ESI contribution. However, if the same incentive is being paid after a two-month period, it will not attract ESI contribution.

Thanks & Regards,
Devesh Chauhan
Practicing in Accounts, Finance, Taxation, Labour Laws

An employee who is earning over Rs. 15,000 per month will not fall under the purview of ESI. It is important to note that the increase in the ESI threshold from Rs. 15,000 to Rs. 21,000 has not yet taken effect as the notification is still awaited, to the best of my knowledge.

Dear Kankit,

Mr. Devesh Chauhan is right. If any incentive, of whatever amount, is provided on a monthly basis along with the salary, in this case, all amounts will be considered under the ESI Act. If the same incentive is paid after 2 months or quarterly, in this case, ESI will not apply.

Sunil Kumar Chauhan Director - Trainer on Manufacturing Basics FGLA Concept Marketing Private Limited