WAGES UNDER ESIC ACT :-
WASHING ALLOWANCE:
It is a sum paid to defray special expenses entailed by the nature of
employment and as such this amount does not amount to wages.
(In lieu of old instructions issued vide Memo No.Ins.III/2/1/65 dt. 8.2.1967)
SUSPENSION ALLOWANCE/SUBSISTENCE ALLOWANCE
During the suspension period the employee is not allowed to actually
work and he is not given full remuneration but the permissible
subsistence allowance is paid to the employee by way of remuneration
for remaining attached to the services of the employer as per the
relevant service regulations governing his contract of service,
therefore, the subsistence allowance is part of wage as defined under
Sec.2(22) of the ESI Act and consequently on the amount of subsistence
allowance paid to the suspended employee, contribution is payable.
Supreme Court has also held in the case of RD, ESIC Vs.M/s.Popular
Automobiles etc.inits judgement dt. 29.9.97 in Civil appeal no.3850 of
1993 that suspension/subsistence allowance is wage and contribution is
payable under Sec.2(22) on the said amount.
(In lieu of earlier instructions were issued vide Memo No.3(2)-1/67
dt. 3.6.67 & letter No.Ins.III(2)-2/71 dt. 10.8.1971)
OVERTIME ALLOWANCE
In the case of the employer as and when the employer finds the need to
have work done expeditiously, in addition to the normal work during
the course of the working hours, the employer offers to the employee
to do the overtime work after the working hours. When employee does
overtime work it amounts to the acceptance for the same, hence there
emerges concluded implied contract between the employer and the
employee. Both the remuneration received during the working hours and
overtime constitutes a composite wage and thereby it is a wage within
the meaning of Sec.2(22) of the ESI Act. Therefore, the contribution
is payable on the overtime allowance. However, overtime allowances
will be considered as wage for the purpose of charging the
contribution only and will not be considered for the purpose of the
coverage of the employee under the Scheme.
The same view was held by the Supreme Court in its judgement delivered
on 6.11.96 in the case of Indian Drugs & Pharmaceuticals Ltd. Vs.
ESIC, in Civil Appeal No.2777 of 1980.
(Old instructions issued vide memo No.3-1(2)/3(1)/68 dt. 31.5.68).
ANNUAL BONUS:
Bonus paid to the employees could not be treated as wage for the
purpose of charging of contribution under Sec.2(22), provided the
periodicity of the payment is more than 2 months. The said issue was
also considered in the meeting of the ESI Corporation held on
19.12.1968 and the Corporation agreed to the recommendations of the
Standing Committee that bonus may not be treated as wage.Hence no
contribution is payable on annual Bonus.
(Earlier instructions were issued vide memo No.Ins.III/2(2)-2/67 dt. 8.2.1967).
INCENTIVE BONUS:
As per 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 has to be paid at
intervals not exceeding two months as distinguished from being
payable. Thus, there has to be actual payment and the payment of
production incentive does not fall either under the 1st part or 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.
(Earlier instructions were issued by this office vide Memo
No.T-11/13/53/19-84-Ins.IV dt. 19.9.84, Memo No.Ins.III-2(2)/2/69 dt,.
26.12.73, Memo No.T-11/13/54/18/82-Ins.IV dt. 14.7.82 & Memo
No.D/Ins.5(5)/68 dt. 18.9.88.)
PRODUCTION BONUS:
Production Bonus like incentive bonus is paid to the workers as
additional remuneration and hence like incentive bonus such additional
remuneration in order to become wages has to be paid at intervals not
exceeding 2 months as distinguished from being payable. Thus, there
has to be actual payment and hence no contribution is payable,
provided periodicity of the payment is more than 2 months.
(Earlier instructions issued vide letter dated 4(2)/13/74-Ins.IV dated 2.9.85)
INAM/EX-GRATIA PAYMENT:
Inam represents a payment made by the employer to any employee as a
reward for the services rendered by him for which he is/was not under
obligation to render the same under the contract of service which is
expressed or implied but does not include the payment which have been
made to an employee in fulfillment of contract of service. This may
include exgratia payment.
Where Inam is being paid for special skill or higher
responsibilities/additional duties, it may be taken as remuneration
and contribution is payable.
Where the employer has introduced the scheme of Inam but according to
terms and conditions the employer has no right to withdraw it or
revise it, the same may be treated as wages and contribution is
payable.
Where the employer has introduced the scheme of Inam and he has right
to revise or withdraw it at his discretion, the payment of Inam under
such scheme may not be treated as wages and contribution is not
payable provided the payment is made at an interval exceeding two
months..
Where there is no scheme of Inam in writing but still employer might
be making payment under the head Inam on the basis of some
understanding between the parties, in such cases, the nature of
payment and its periodicity may be ascertained and whether payment of
Inam is an exgratia payment which is not covered by the contract of
service. In case the periodicity is more than 2 months, no
contribution may be charged.
(Last instructions were issued vide letter No.D-Ins.5(5)/68 dated 21.2.1975).
WAGES PAID DURING LAYOFF:
During the period of layoff though the employee is not given actual
work and is also not given full remuneration but certain wages are
paid to the employee by way of remuneration for remaining attached to
the factory/establishment of the employer, therefore, such payments
paid for the period of layoff are also wages for the purpose of
Sec.2(22) of the ESI Act and hence contribution is payable on such
payments.
(Earlier instructions were issued in 1968).
ANNUAL COMMISSION
Sales Commission would fall within the 3rd category of wages as
defined underthe Act as additional remuneration and there has to be
actual payment as the word used is paid and not payable, at intervals
not exceeding two months. The question as to why the period of 2
months is fixed was debated in Supreme court in the case of Handloom
House, Ernakulam Vs. RD,ESIC in Civil Appeal No.2521 of 1999 when it
was held that no employer shall have the permission to draw the
payment of contribution on the premise that annual payments have to be
work out. Normally, the wage period is one month, but the Parliament
would have thought that such “wage period” may be extended a little
more but no employer shall make it longer than two months. This could
be the reason for fixing a period of two months as the maximum period
for counting the additional remuneration has to make it part of ‘wage’
under the Act. Therefore, the annual commission is excluded from the
definition of the wages and hence no contribution is payable on the
annual commission.
( Earlier instructions were issued vide Hqrs.letter No.
Ins.III(2)-2/71 dated 10.8.71).
HOUSE RENT ALLOWANCE
House Rent Allowance is wage in cases where it is being paid. Notional
amount of house rent can not be presumed as wages for deciding the
coverage. In cases where an employee is being paid house rent
allowance, the same will be included both for coverage and
contribution. In cases where the staff quarters have been allotted the
amount of salary and wages paid will count for coverage and
contribution and no notional house rent allowance is to be presumed in
such cases.
In the cases of Braithawait & Co. Vs. ESIC and M/s.Harihar Polyfibres
Vs. ESIC, Bangalore, Supreme Court has also held that house rent
allowance is a wage under Sec.2(22) of the ESI Act.
(Earlier instructions were issued vide memo No.T-11/13/11/15-Ins.III
dt. 28.9.75, No.Ins.III(2)/15/15/74-Ins.Desk.I dated Dec.,76,
No.T-11/13/53/19-84/Ins.IV dt. 19.9.84 & No.D.Ins.II/11/3087/303 dated
1.3.1985).
NIGHT SHIFT/HEAT/GAS & DUST ALLOWANCE:
It is an additional remuneration paid to the employee for performing
duty atnight time during the hours of darkness. This amount is paid by
way of incentive under the scheme of settlement entered into between
the Management and its workmen and hence are wages within the meaning
of Sec.2(22) of the ESI Act. This view was observed by the Full Bench
of Karnataka High Court in the case of NGEF Ltd. Vs. Dy.Regional
Director, ESIC, Bangalore. Supreme Court in the case of M/s.Harihar
Polyfibers Vs. RD ESIC, Bangalore has also held the same view. Hence,
Night Shift Allowance, Heat, Gas & Dust allowance are wages under
Sec.2(22) of the ESI Act and contribution is payable on the said
amount paid by the employer to the employees.
(Earlier instructions were issued vide Memo No.T-11/13/53/19/84-Ins.IV
dated 19.9.94).
CONVEYANCE ALLOWANCE
Fixed conveyance allowance flowing out of a wage settlement or as per
terms and conditions of employment should be treated as wages under
section 2(22) for all purposes except:
1) Amount towards conveyance paid or reimbursed to any employee for
incurring expenses for specific duty related journey
2) Reimbursement of actual cost of conveyance for coming to work and
going from work on production of ticket or season ticket and subject
to proof of actual expenditure
3) Payment of certain amount for maintenance of vehicle depending upon
cadre of the official and category of vehicle and subject to
production of records for actually maintaining the vehicles
4) Fixed allowance paid at an interval exceeding 2 months, unless such
payment is made as per contract or agreement.
SERVICE CHARGES
Service charges are collected by management of the hotel on behalf of
their employees in lieu of direct tips and the same is paid to their
employees at a later date.
Such amount collected as service charges will not constitute wages
under Sec.2(22) of the ESI Act. In the case of ESIC Vs. M/s.Rambagh
Palace Hotel, Jaipur, the High Court of Jaipur has held that service
charges are not wages under Section 2(22) of the ESI Act. This verdict
of the High Court of Jaipur was accepted in the ESIC and hence no
contribution is payable on service charges.
(Earlier instructions were issued vide letter
No.P-12/11/4/79-Ins.Desk.I dt. 18.9.79)
MEDICAL ALLOWANCE
The employees working in factories/establishments are being provided
medical services in kind by the employer but in certain
factories/establishments instead of providing medical services in
kind, the amount spent by the employees on medical care is reimbursed
while in some other organisations, employees are being paid monthly
cash allowance in lieu of medical aid/reimbursement of medical
expenses. Where such payments are made by the employer in lieu of the
medical benefit, the same are to be treated as wages under Sec.2(22)
of the ESI Act and the contribution is chargeable.
(Earlier instruction were issued vide letter No.Ins.5(5)/68-Ins.III
dt. 21.8.71 & Ins.III/2(2)2/68 dated 24.6.71)
NEWSPAPER ALLOWANCE
In certain factories/establishments the employees are reimbursed the
cost of Newspapers while in some other factories/establishments the
employees are paid monthly newspapers allowance instead of
reimbursement of the cost of the Newspapers. Where the amount is being
paid regularly to the employees by the employer as Newspapers
allowance the same will be treated as wages under Sec.2(22) of the ESI
Act and the contribution is chargeable. However, where the cost of
Newspapers is reimbursed to the employees, no contribution is to be
charged on such payments.
EDUCATION ALLOWANCE:
Employees are being paid monthly Education allowance for the children
studying in the Schools/Colleges. Where such education allowance is
being paid monthly, the same is to be considered as wages under
Sec.2(22) of the ESI Act and the contribution is chargeable on the
said amount.
However, in such cases where instead of paying the education allowance
on monthly basis, the amount spent as fee is reimbursed to the
employees and booked under education allowance, in such cases no
contribution is payable.
DRIVERS’ ALLOWANCE
In some of the factories/establishments the officers employed as
employees are being paid drivers’ allowance per month. This allowance
is being paid to enable the officers to appoint a driver at their own
level and such drivers employed are not being paid salary directly by
the factories/establishments. Where such allowance is being paid to
the employees and the drivers are not engaged by the employees, in
such event the allowance paid as such will be considered as wage under
Section 2(22) of the ESI Act and contribution will be chargeable
provided the employee is coverable under the Scheme.
However, where the services of the drivers are being utilised, in such
event the drivers so engaged will be covered as employee and
contribution will be payable on the amount paid to the drivers as
salary and booked in the ledgers of the employer under the heading
“Drivers’ Allowance”.
FOOD/MILK/TIFFIN/LUNCH ALLOWANCE:
Each case of payment of Food, Milk, Tiffin and Lunch Allowance has to
be examined on its merits depending on the following conditions under
which the allowance is payable:-
a) Tiffin/Food/Milk/Lunch Allowance paid in cash at a fixed rate
irrespective of whether the person is absent or on authorised leave
etc. may be treated as wages.
b) Tiffin/Food/Milk/Lunch allowance paid in cash with deduction for
leave or absence etc. may not be treated as wages.
c) Tiffin/Food/Milk/Lunch allowance paid in kind i.e. canteen
subsidy/food subsidy etc. may not be treated as wages.
(Earlier instructions were issued vide letter No.P-11/13/97-Ins.IV
dated 2.2.1999)
GAZETTED ALLOWANCE
Certain factories/establishments are paying gazetted allowance to its
employees in lieu of duties performed by them on gazetted holidays.
Such gazetted allowance is not wage for the purpose of Sec.2(9) of the
ESI Act. However, it will be wage for the purpose of Sec.2(22) of the
ESI Act and the contribution are to be recovered on such payments.
WAGES AND DEARNESS ALLOWANCE FOR UNSUBSTITUTED HOLIDAYS:
Such wages and dearness allowance paid to the employees for the
unsubstituted holidays are to be treated as wages under Sec.2(22) of
the Esi Act and the contribution is payable. High Court of Gujarat in
the case of ESIC Vs. New Assarw Manufacturing Co.Ltd. held the same
view.
EXGRATIA PAYMENT DURING STRIKE FOR TRAVELLING EXPENSES
Like conveyance allowance if any exgratia payment is made during the
period of strike to some of the employees to incur certain travelling
expenses such amount will neither be considered as wage under Sec.2(9)
nor under Sec.2(22) of the ESI Act and no contribution is payable on
such amount. High Court of Bombay in the case of ESIC Vs. Willman
(India) (P) Ltd. in case No.210 of 1976, held the same view.
INTERIM RELIEF:
Interim relief paid to the employees is normally paid when either the
wage is under revision or when the payment of Dearness Allowance is
delayed due to any reason. Whatsoever may be the case, if the interim
relief is paid to the employees by any employer, the same will amount
the wages within the meaning of Sec.2(22) of the ESI Act and
contribution is payable thereon.
SAVING SCHEME
Certain factories/establishments are contributing towards the saving
scheme for the welfare of the workers. Such amount paid by the
employer as his contribution to the saving scheme, will not constitute
wages under Sec.2(22) of the ESI Act and the contribution is not
payable. (Earlier instructions were issued vide Memo
No.P-12/11/4/77-Ins.IV dt. 15.11.80)
ATTENDANCE BONUS
It is a special allowance being paid by certain employers to their
employees to discourage the workers from absenting from the job. Any
amount paid by the employer to its employees as Attendance Bonus will
constitute wages under Sec.2(22) of the ESI Act and the same opinion
was held by Bombay High court in the case of ESIC Vs. Indian Dyestuff
Industries Ltd.. However, the periodicity aspect has to be kept in
mind. In case the periodicity is more than 2 months, the same will not
constitute wages and no contribution will be payable as in the case of
incentive bonus.
PAYMENT MADE TO RICKSHAW PULLERS,HATHRAIRY PULLERS AND TRUCK OPERATORS
(INCLUDING LOADING & UNLOADING CHARGES WHEN THE LOADERS/UNLOADERS ARE
THE EMPLOYEES OF THE TRUCK OPERATORS:
Rickshaw pullers, Hathrairy pullers and Truck Operators (who bring
labour with them) no contribution is payable on the amount paid by the
employer if the amount paid is lumpsum amount including
loading/un-loading charges and no separate wages are paid by the
employer.
Similar view was held by Bombay Division Bench in 1990 in the case of
Raisaheb Tekchand, Mohate Mills Vs. R.D. ESIC.
HAMALS/COOLIES EMPLOYED AT A PARTIULAR TIME
Where Hamals & Coolies are employed at a particular place and a
particular time, outside the premises of the factory/establishment to
perform a specific job on the spot in such cases no contribution is
payable on the amount paid to such Coolies/Hamals, however the
contribution is payable on the amount paid to the coolies and hamals
for services rendered within the premises of the employer.
Bombay High Court in the case of Parley Bottling Co.Ltd. VS. ESIC,Bombay
1989 and Supreme Court in the case of ESIC VS.Premier Clay Products,
have held this view.
SHORT PERIOD CONTRACT FOR SERVICE – ELECTRICIAN, CARPENTERS,
MECHANICS, PLUMBERS ETC./REPAIR WORK DONE ON SHOP
In such cases also contribution is payable on the amount paid by the
Employer if the services are rendered within the premises. This view
was also held by Punjab and Haryana High Court vide its judgement
dated 29.3.84 in the case of Modern Equipment Vs. ESIC in Civil Appeal
No.3218 of 1989.
EXPENDITURE ON SERVICING OF MACHINES
No contribution is payable on the servicing of machines where the job
awarded is to the Engineer and instead of contract of service, there
is a contract for service for servicing of machines.
EXPENDITURE ON ANNUAL/PERIODICAL SERVICE CONTRACT
In the factories/establishments certain amount is being paid by the
employer to the supplier of machines or to the firms of repute for the
annual/periodical servicing of the machines and for such purposes the
contract is awarded. In such cases no contribution is payable on the
amount paid for annual/periodical service contracts.
COMMISSION TO DEALERS/AGENTS:
Where dealers/agents are appointed by the employers but no regular
wages are paid and it is not obligatory on the part of such
dealers/agents to attend to the factories/ establishments and they are
paid commission only on the quantum of sales, in such cases the amount
paid by the employer as commission/dealership does not constitute wage
under Section 2(22) of the ESI Act and hence no contribution is
payable.
SERVICE CONTRACT
Amount paid to an organisation for maintenance of Machinery/Equipments
as part of service contract will not attract ESI contribution.
PAYMENT MADE TO LABOUR CONSULTANTS, LAWYERS, ENGINEERS, COUNSELS,
CHARTERED ACCOUNTANTS:
The amount paid by the employer to labour consultants, lawyers,
engineers, counsels, chartered accountants does not constitute wage as
per provisions under Section 2(22) of the ESI Act and hence no
contribution is payable.
The following items will form part of the wage both under Section 2(9)
i.e for considering the employee for the purpose of coverage and
Section 2(22) of the ESI Act for the purpose of charging of
contribution:-
a) Matinee allowance which is being paid to employees in Cinema Houses.
b) Shift allowance paid to employees who work on shift duty at odd shifts.
c) Location allowance paid, in addition to Dearness Allowance to meet
the high house rent.
d) Compensatory allowance.
e) Cash handling allowance paid to Cashier.
f) Supervisory Allowance.
g) Additional pay paid to training staff.
h) Charge allowance
i) Steno/Typist allowance
j) Plant allowance
k) Honorarium for looking after the hospital/dispensary
l) Computer allowance
m) Gestetner/Photocopier/Printer allowance
n) Personnel/Special allowance
o) Machine allowance
p) Convassing allowance
q) First-aid allowance
r) Personnel allowance – Pay over and above the basic wage and
Dearness allowance for skill, efficiency or past good records.
s) Area allowance – given to employees living in a particular area to
meet the high cost of living in that area.
t) Exgratia payment if payment is made within an interval of two months.
The following items will not form part of the wage either under
Section 2(9) or under Section 2(22) of the ESI Act:-
a) Payment made on account of un-availed leave at the time of discharge.
b) Commission on advertisement secured for Newspapers, if not paid to
the regular employee.
c) Fuel allowance/Petrol allowance
d) Entertainment allowance
e) Shoes allowance
f) Payment made on account of gratuity on discharge/retirement.
g) Payment made on encashment of leave.
Thanks & Regards,
Meetesh Shiroya
