Managing Piece-Rate Worker Records: How Do You Handle ESIC and PF with Fluctuating Earnings?

Recruiting workers on a piece-rate basis - how do we have to maintain their records, especially their ESIC and PF contributions? If in one month, his/her earnings are Rs 30,000, they are exempted from EPF and ESI.

Managing Fluctuating Earnings
Next month, if earnings are Rs 14,000, how will you manage? Anybody, please advise.

Once covered by EPF, an employee will continue to be covered irrespective of wages. Similarly, an employee covered by ESI will remain covered at least until the contribution period ends. When you register a worker whose wages are exclusively under a piece-rate arrangement (the statutory minimum wages do prescribe a standard time rate even for workers under a piece rate), you need to consider the average remuneration that he might earn per month had he worked for 26 days. Even when you appoint someone, you will be 'offering' wages, and that can be considered as 'notional wages' for coverage under EPF and ESI.

EPF and ESI as Social Security Arrangements

EPF and ESI are social security arrangements, and offering them to a worker will not cost you heavily. Therefore, if the earnings in off-seasons are not going to be more than Rs 15,000, you can consider giving them PF. The contribution, of course, can be restricted to Rs 15,000. Similarly, you can give ESI also.

Complications with Piece-Rate Wages

There are some complications associated with the treatment of piece-rate wages. It is true that if the notional wages, the wages that one should have earned had he worked for the entire month comprising 26 days, exceed Rs 15,000 or Rs 21,000, as the case may be, he can be excluded from the coverage of ESI and PF. When you apply this rule for coverage, the authorities can ask for the time rate (standard time rate) fixed for the category by the government and treat the piece rate as 'incentive wages.' Expert opinion invited.

Gratuity Calculation for Piece-Rate Workers

Again, when you pay by piece, there cannot be any bifurcation of wages at the time of calculating gratuity. Almost all employers now pay gratuity based on basic pay and DA, if any. Though I do not support this view at all, this is the practice. Then in respect of workers who are paid purely based on the number of units manufactured, the same will be the salary for the calculation of gratuity. The employer will have to take the average of the wages for the period three months preceding the date of exit of the worker.

Dear Rakesh, Following are some suggestions/points to ponder:

1) The piece rate should not be less than the minimum wages applicable to the establishment.

2) ESIC membership should be continued for a period of 6 months (till the contribution period ends) even if the wages exceed Rs. 21,000.

3) Once a PF member, membership should be continued with a minimum contribution on the ceiling of Rs. 15,000 if drawing wages higher than Rs. 15,000, and on the actual wages if drawing less.

Hope this helps.

Regards, Shailesh Parikh [Phone Number Removed For Privacy-Reasons]