Dear All,
After looking at such a wonderful response to my earlier post regarding PF, I thought of starting a similar thread on ESI. ESI is a statute that affects almost everyone in our field. The most disputed part of ESI is invariably the case of Conveyance. Some companies deduct Conveyance while calculating Gross Salary, some do not. Here, I will try to deal with this part:
Conveyance or Traveling as part of Salary should always be taken as a part of Gross Salary for calculating ESI Contributions. The reason being the exclusion is for Traveling Expenditure and not any Allowance which is paid under the head of Traveling/Conveyance.
Well, what is the difference?
CASE I:
Any compensation which is in the nature of an allowance by whatever name it may be called (you can call it Expenditure also) is a compensation that is paid to an employee if he fulfills the terms and conditions of service, and is not related or compulsory for the employee to spend under the heading it is paid, and/or is central to the execution of the job.
Let me give an example:
Companies which have Conveyance Allowance in the majority of cases do not differentiate between two employees on the distance the employee needs to travel to come to the office. In the majority of cases, Conveyance is either a fixed sum for a particular level like Manager or is paid as a percentage of Basic/Basic and DA. So, if one Manager who can walk to his Office receives the same allowance as the Manager who might have to travel a long distance to reach the office.
Second, it does not matter whether the Manager is dropped to the office by his relative or friend, he still receives the Allowance although his expenditure regarding Conveyance is nil.
Third, it does not matter how you spend the money or under what head you pay like he can set aside his Conveyance Allowance for paying his children's school fees.
Fourth, the Allowance is not central to carrying out the job or working, i.e., an employee does not depend on the allowance to execute the job. He may need less or more for carrying out his job.
In this case, the amount paid is to be included in ESI.
CASE II: Amounts to be Excluded:
Any Traveling expenditure incurred by an employee reimbursed by the employer to come to work and any reimbursement paid for expenses incurred in doing official work are not included.
For example, suppose the Factory is situated on the other side of the River, and there is a Ferry Service, all other routes to the Factory are either very long or there is no other route. If the employer pays the fare of the Ferry Service directly to the employee, it is to be excluded.
Similarly, traveling expenditures are directly paid to employees who work in remote places, Oil Rigs in the Sea, etc., along with the Salary.
When payment is directly related to traveling, is incurred only on account of traveling, and is central to carrying out the job and in the absence of the payment, it may not be viable for the employee to continue in the job.
This is the type of payment that is to be excluded from ESI.
Hope to get feedback.
Regards,
SC
From India, Thane
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47After looking at such a wonderful response to my earlier post regarding PF, I thought of starting a similar thread on ESI. ESI is a statute that affects almost everyone in our field. The most disputed part of ESI is invariably the case of Conveyance. Some companies deduct Conveyance while calculating Gross Salary, some do not. Here, I will try to deal with this part:
Conveyance or Traveling as part of Salary should always be taken as a part of Gross Salary for calculating ESI Contributions. The reason being the exclusion is for Traveling Expenditure and not any Allowance which is paid under the head of Traveling/Conveyance.
Well, what is the difference?
CASE I:
Any compensation which is in the nature of an allowance by whatever name it may be called (you can call it Expenditure also) is a compensation that is paid to an employee if he fulfills the terms and conditions of service, and is not related or compulsory for the employee to spend under the heading it is paid, and/or is central to the execution of the job.
Let me give an example:
Companies which have Conveyance Allowance in the majority of cases do not differentiate between two employees on the distance the employee needs to travel to come to the office. In the majority of cases, Conveyance is either a fixed sum for a particular level like Manager or is paid as a percentage of Basic/Basic and DA. So, if one Manager who can walk to his Office receives the same allowance as the Manager who might have to travel a long distance to reach the office.
Second, it does not matter whether the Manager is dropped to the office by his relative or friend, he still receives the Allowance although his expenditure regarding Conveyance is nil.
Third, it does not matter how you spend the money or under what head you pay like he can set aside his Conveyance Allowance for paying his children's school fees.
Fourth, the Allowance is not central to carrying out the job or working, i.e., an employee does not depend on the allowance to execute the job. He may need less or more for carrying out his job.
In this case, the amount paid is to be included in ESI.
CASE II: Amounts to be Excluded:
Any Traveling expenditure incurred by an employee reimbursed by the employer to come to work and any reimbursement paid for expenses incurred in doing official work are not included.
For example, suppose the Factory is situated on the other side of the River, and there is a Ferry Service, all other routes to the Factory are either very long or there is no other route. If the employer pays the fare of the Ferry Service directly to the employee, it is to be excluded.
Similarly, traveling expenditures are directly paid to employees who work in remote places, Oil Rigs in the Sea, etc., along with the Salary.
When payment is directly related to traveling, is incurred only on account of traveling, and is central to carrying out the job and in the absence of the payment, it may not be viable for the employee to continue in the job.
This is the type of payment that is to be excluded from ESI.
Hope to get feedback.
Regards,
SC
From India, Thane
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Dear Satya,
I had posted the reply, but due to some technical problem on our server, it has not been posted. Let me say it once again:
Any compensation, by whatever name it is called, in the nature of an allowance in general should be considered for ESI, except for the following:
1) If the allowance is in the nature of reimbursement and depends on the actual expenditure.
2) The amount is not fixed and is not more than the actual expenses any employee of the class/rank will spend under normal circumstances.
3) It is not related to any other benefit, is independent and specific in nature, hence the character of the amount can be classified as Special Expenditure.
Regards,
SC
From India, Thane
Acknowledge(1)Amend(0)
I had posted the reply, but due to some technical problem on our server, it has not been posted. Let me say it once again:
Any compensation, by whatever name it is called, in the nature of an allowance in general should be considered for ESI, except for the following:
1) If the allowance is in the nature of reimbursement and depends on the actual expenditure.
2) The amount is not fixed and is not more than the actual expenses any employee of the class/rank will spend under normal circumstances.
3) It is not related to any other benefit, is independent and specific in nature, hence the character of the amount can be classified as Special Expenditure.
Regards,
SC
From India, Thane
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