Are ESIC and PF Deductions Needed for Employee Arrears and Incentives? Seeking Guidance

Respected All,

Could anyone please guide me on whether ESIC and PF deductions are applicable when we pay increment arrears to employees? Additionally, I would like to know if it is mandatory to deduct ESIC & PF on any incentives paid to employees.

Your assistance on this matter would be greatly appreciated.

Arrears of Salary and ESI

Arrears of salary will not attract ESI. However, you must pay EPF on the amount. It should be paid along with the month's contribution; otherwise, it will be considered an arrear payment of PF on omitted wages. Therefore, care should be taken while paying PF on arrears of wages.

Incentives and PF/ESI Contributions

Incentives are outside the scope of wages for PF purposes. But if the incentive is paid every month along with wages, then it will attract ESI. The law states that any allowance paid to employees at intervals of more than two months shall be excluded from ESI contribution. Therefore, if you pay incentives every quarter, then it will not attract ESI.