How Does ESI Apply to Quarterly Incentive Bonuses and Advance Payments?

ESI Applicability on Quarterly Payment of Incentive Bonus

Query 1: The employer has started a production-linked incentive scheme where employees can receive per-piece incentives after surpassing the target. The employer mentioned that employees would be paid incentive bonuses on a quarterly basis. Does this attract ESI?

Query 2: Employees belonging to a low financial background require partial payment before the completion of the third month. For instance, the employee union proposed that calculating the total incentive amount on a quarterly basis is acceptable, but employees need advance payment. In the first quarter (April, May, June), the total incentive for an employee was $8000. However, he requested an advance in mid-June due to financial needs. The employer provided $5000 as an advance, and the remaining $3000 was paid after the completion of June, around the first week of July. Currently, all employees are requesting advance payments. Do these payments trigger ESI implications, considering that the payments are made every 2-3 months?

Final query: Is ESI applicable on part payment of incentive bonus?

Part payment occurs every two months, and the incentive bonus is due after the third month.

If incentives are paid on a monthly basis, then ESI should be calculated for the incentives as well.

However, if the incentives are paid quarterly, half-yearly, or annually, then they will not come under the purview of ESI.

Supreme Court Decision on ESI and Incentives

According to the decision of the Supreme Court delivered on 8.3.2000 in the case of M/s. Whirlpool India Ltd. Vs. ESIC in civil appeal No. 1903 of 2000, additional remuneration to become wages must be paid at intervals not exceeding two months, distinguished from being payable.

Thus, there must be actual payment, and the payment of production incentives does not fall under either the first part or the last part of the definition of the term wages as defined in Sec. 2(22) of the Act. Hence, no contribution is payable on the incentive bonus, provided the periodicity of payment is more than 2 months.