Dear Friends,
Greetings of the Day!
One of my friends is working as an HR Executive in a LIMITED firm. He wants to know if his company has made some changes in salary processing and its contributions. They are calculating ESIC contributions (Employer and Employee) based on the BASIC salary. Is this correct? If not, how can he take legal action against the company?
Please provide the details in depth.
From India, Karnal
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Greetings of the Day!
One of my friends is working as an HR Executive in a LIMITED firm. He wants to know if his company has made some changes in salary processing and its contributions. They are calculating ESIC contributions (Employer and Employee) based on the BASIC salary. Is this correct? If not, how can he take legal action against the company?
Please provide the details in depth.
From India, Karnal
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ESI is to be contributed based on the total salary, and only traveling expenses reimbursements and washing allowances do not form part of the salary for the purpose of ESI. Therefore, the new practice adopted by the company is wrong. As an HR person, you have to advise the employer on what is correct. I don't think that you need to take any legal action against the employer; you may just advise the management that during an ESI audit, the ESI will object to this new practice. In such an instance that may occur in the future, we will have to contribute on the omitted wages together with interest. In such a scenario, we will not be able to recover whatever we could collect from the employees.
Madhu.T.K
From India, Kannur
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4483Madhu.T.K
From India, Kannur
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Hi Shamsali,
In addition, you could also get the notification which states that ESIC is to be calculated on the total (gross) salary and ask your management to provide any such notification that mentions that ESIC can be calculated on Basic+DA (which could justify their action). It is always better to have written proof that supports your words and actions. Explain to the management that now the employees are becoming aware and conscious, especially when it is about their compensation or any benefit they are entitled to. At times, employees could even ask for a written statement about the deductions. So it's better to be prepared.
From India, Pune
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In addition, you could also get the notification which states that ESIC is to be calculated on the total (gross) salary and ask your management to provide any such notification that mentions that ESIC can be calculated on Basic+DA (which could justify their action). It is always better to have written proof that supports your words and actions. Explain to the management that now the employees are becoming aware and conscious, especially when it is about their compensation or any benefit they are entitled to. At times, employees could even ask for a written statement about the deductions. So it's better to be prepared.
From India, Pune
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Hi Shamsali,
It's incorrect to have ESIC deducted only on Basic; it's on total emoluments excluding Washing Allowance. One can visit esic.nic.in for more info or call us on 09665050355 for further queries.
Regards, Sunil Prodigy Technologies
www.prodigytechnologies.in | www.intellipayroll.com
From India, Pune
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It's incorrect to have ESIC deducted only on Basic; it's on total emoluments excluding Washing Allowance. One can visit esic.nic.in for more info or call us on 09665050355 for further queries.
Regards, Sunil Prodigy Technologies
www.prodigytechnologies.in | www.intellipayroll.com
From India, Pune
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Hi Shamsali,
ESIC has to be calculated only on the Gross (Total Wages Paid). This includes the OT wages too. But the ESIC payable is excluding the washing allowance. Now put it in papers to the management. Please make the management aware of Sections 84, 85, 85-A, and 86-A of The ESIC Act, 1948 to ensure they understand their obligations.
Regards,
Yashwanth R
From India, Bangalore
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ESIC has to be calculated only on the Gross (Total Wages Paid). This includes the OT wages too. But the ESIC payable is excluding the washing allowance. Now put it in papers to the management. Please make the management aware of Sections 84, 85, 85-A, and 86-A of The ESIC Act, 1948 to ensure they understand their obligations.
Regards,
Yashwanth R
From India, Bangalore
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Hi Shamsali,
The term "wages" has been defined in many statutes in as many ways. Section 2(22) of the ESIC defines wages in an entirely different manner for contribution parts.
"Wages means all remuneration paid or payable in cash to an employee. If the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike, which is not illegal or layoff, and other additional remuneration if any paid at intervals not exceeding two months but does not include PF contribution by the employer, any traveling allowance, and gratuity payable on discharge, and any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment.
An analysis of the definition of wages under section 2(22) of the Act reveals that it consists of four parts.
The first part refers to all remuneration paid or payable in cash to an employee. If the terms of the contract of employment, express or implied, are fulfilled. The second part of the definition of wages includes any payment to an employee in respect of any period authorized leave, lockout, strike which is not illegal or lay-off. The third part of the definition includes other additional remuneration, if any, paid at intervals not exceeding two months. The fourth part of the definition of the term wages does not include any contribution paid by the employer to any pension fund, the traveling allowance, or any sum of the person employed to defray special expenses entailed on him by the nature of his employment or any gratuity payable on discharge.
It will be seen that the above definition starts with the word all remuneration and as such it has been attracting controversy more particularly when it does not clarify which of the allowances or perks will form part of the wage. Although the definition is inclusive and exclusive both, yet this issue has repeatedly gone to courts for interpretation in innumerable cases. The ESI Corporation has clarified the term from time to time, including lastly by Memorandum No 11/13/94 - INS IV dated 201-11-2000. Still, it cannot be said to be exhaustive. With the passage of time and fast changes in the industrial relations scenario, many allowances have been introduced to the employees as welfare measures.
This means the remittance for ESIC needs to be done on the gross salary by excluding certain components which are exempted by the ESIC, i.e.,
1. Washing Allowance
2. Incentive bonus
3. Annual bonus
4. Annual Commission
5. Production bonus - when paid at intervals not exceeding 2 months as distinguished from being payable
6. Canteen subsidies
7. Services charges
8. Newspaper allowance - where the cost of newspapers is reimbursed to the employees
9. Saving scheme
10. Payment made to labor consultants, lawyers, engineers, counsels, chartered accountants.
From India, Bangalore
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The term "wages" has been defined in many statutes in as many ways. Section 2(22) of the ESIC defines wages in an entirely different manner for contribution parts.
"Wages means all remuneration paid or payable in cash to an employee. If the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike, which is not illegal or layoff, and other additional remuneration if any paid at intervals not exceeding two months but does not include PF contribution by the employer, any traveling allowance, and gratuity payable on discharge, and any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment.
An analysis of the definition of wages under section 2(22) of the Act reveals that it consists of four parts.
The first part refers to all remuneration paid or payable in cash to an employee. If the terms of the contract of employment, express or implied, are fulfilled. The second part of the definition of wages includes any payment to an employee in respect of any period authorized leave, lockout, strike which is not illegal or lay-off. The third part of the definition includes other additional remuneration, if any, paid at intervals not exceeding two months. The fourth part of the definition of the term wages does not include any contribution paid by the employer to any pension fund, the traveling allowance, or any sum of the person employed to defray special expenses entailed on him by the nature of his employment or any gratuity payable on discharge.
It will be seen that the above definition starts with the word all remuneration and as such it has been attracting controversy more particularly when it does not clarify which of the allowances or perks will form part of the wage. Although the definition is inclusive and exclusive both, yet this issue has repeatedly gone to courts for interpretation in innumerable cases. The ESI Corporation has clarified the term from time to time, including lastly by Memorandum No 11/13/94 - INS IV dated 201-11-2000. Still, it cannot be said to be exhaustive. With the passage of time and fast changes in the industrial relations scenario, many allowances have been introduced to the employees as welfare measures.
This means the remittance for ESIC needs to be done on the gross salary by excluding certain components which are exempted by the ESIC, i.e.,
1. Washing Allowance
2. Incentive bonus
3. Annual bonus
4. Annual Commission
5. Production bonus - when paid at intervals not exceeding 2 months as distinguished from being payable
6. Canteen subsidies
7. Services charges
8. Newspaper allowance - where the cost of newspapers is reimbursed to the employees
9. Saving scheme
10. Payment made to labor consultants, lawyers, engineers, counsels, chartered accountants.
From India, Bangalore
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