Contract Employment Dilemma: Should ESI and PF Be Deducted from Monthly Bonus Payments?

Dear Team,

In terms of contract employment, if the annual bonus amount is paid on a monthly salary and included in the salary register, do we need to deduct the ESI and PF for the payment of the monthly bonus? Kindly provide your opinion on the same.

Dear Karthi, since the periodicity of payment of the bonus amount is less than 2 months, it will be considered as wages under Sec.2(22) of ESIC. Please refer to the following:

"Bonus paid to employees could not be treated as wages for the purpose of charging contributions under Sec.2(22), provided the payment's periodicity is more than 2 months. This issue was also discussed during the ESI Corporation meeting on 19.12.1968, and the Corporation accepted the recommendations of the Standing Committee that bonus should not be treated as wages. Therefore, no contribution is required on annual bonuses. (Earlier instructions were issued via memo No.Ins.III/2(2)-2/67 dated 8.2.1967).

Shailesh Parikh

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Vadodara