Understanding ESI Threshold: Can Leave Wages and Bonuses Be Excluded? Seeking Clarification and Proof

Dear Seniors,

Kindly clarify the following: Can we exclude leave wages (monthly payment) and statutory bonuses (monthly advance payment) from the ESI threshold limit? For example, if the total gross amount is Rs. 23,000 (inclusive of leave wages and statutory bonus), and we exclude LW Rs. 1000 and bonus Rs. 1000, can we still cover the employee under ESI? If yes, please share your valuable comments along with proof.

Thanks,
V. Annakumar

First of all, let me say that you cannot pay "leave wages" included in the wages. You can pay it separately as it is leave surrender, which is an employee benefit and not part of remuneration. Second, you cannot pay an advance of a bonus along with wages. It should be paid separately as a bonus advance. Now, after excluding these two payments, if the wages come within Rs 21,000, then the employee will be under ESI. Obviously, if you have a component called traveling or conveyance allowance or washing allowance, then those components should also be excluded from wages to decide the coverage as well as contribution.