Is Monthly Leave Encashment and Bonus Subject to ESI Deductions? Seeking Clarity

Query on ESI Deduction for Monthly Allowances

This is Ramu, working in a manufacturing industry as DM-HR at Vijayawada. My query is whether paying leave encashment and bonus on a monthly basis makes these components applicable for ESI deduction.

We have engaged a security agency. As per our contract agreement, all statutory benefits are included in the CTC (PF, leave encashment, bonus, etc.). The security agency raises the bill every month, including statutory benefits. Hence, we have insisted that they pay on a monthly basis. Accordingly, the security agency is paying leave encashment allowance and bonus on a monthly basis, which is reflected in their payslips.

I heard that if any allowance is being paid on a monthly basis, it is liable for ESI. Is this correct or not?

If the security agency pays the salary, they will not come under your payroll. Therefore, the salary or payment you provide goes to the security agency company, not to their employees. If they mention it in their payslips, that is done according to their policies.

Payroll Considerations

If the employees are under your payroll, the components you mentioned, such as bonus and leave, have certain percentages according to statutory regulations. If ESI is calculated based on the basic salary, the components you mentioned will not be included in the basic salary.

I hope I have clarified your doubt.

@RAMU-HR, as per my knowledge and practice of ESI, yes, you are right about gross. The gross is Basic + DA/VDA + HRA. Nothing extra. But I'll still suggest seniors put some light on this topic.