Dear Seniors
I am aware of the concept of contribution periods for ascertaining coverage under the ESI Act.
In our factory, we pay quite a large amount of wages as variable monthly production incentive and also pay Overtime when applicable. The fixed elements of basic, HRA, etc. total only Rs. 10,000 max. for all our employees.
In many months, the total earnings for a full month exceed the upper ceiling of Rs.15,000, often throughout the contribution period. Our consultants are telling us that, as long as the fixed elements of basic, HRA, etc. are less than Rs. 15,000, the employee is always covered under the Act, even though the total earnings, including variable production incentive and OT, exceed Rs. 15,000.
I would like your views on whether this advice is correct and, if so, any references in the Act or in court judgments which support this view.
I am sure I will get very knowledgeable advice in this forum!
Thank you in advance!
Raghav Rao
From India, Hyderabad
1I am aware of the concept of contribution periods for ascertaining coverage under the ESI Act.
In our factory, we pay quite a large amount of wages as variable monthly production incentive and also pay Overtime when applicable. The fixed elements of basic, HRA, etc. total only Rs. 10,000 max. for all our employees.
In many months, the total earnings for a full month exceed the upper ceiling of Rs.15,000, often throughout the contribution period. Our consultants are telling us that, as long as the fixed elements of basic, HRA, etc. are less than Rs. 15,000, the employee is always covered under the Act, even though the total earnings, including variable production incentive and OT, exceed Rs. 15,000.
I would like your views on whether this advice is correct and, if so, any references in the Act or in court judgments which support this view.
I am sure I will get very knowledgeable advice in this forum!
Thank you in advance!
Raghav Rao
From India, Hyderabad
1. Sir, so far as I understand the subject, the items of wages like production incentives etc. and Overtime are differently treated in the ESI Act, 1948. Whereas, all such wages are treated as wages for the purposes of coverage and compliance, under said Act, but the item "overtime" is having different character since on the basis of this item, an employee cannot be treated as exempted by virtue of specific provisions contained in section 2(9) of said Act and Rule 50 of ESI (Central) Rule .1950. The reason may be simple that the term "overtime" is not always fixed and it can vary according to the exigencies of the work.
2. I feel that the classification of wages as "variable" and "non-variable" is no where mentioned in the said Act. If on the basis of Production Incentive/Attendance Bonus etc. (all items excluding Overtime) the wages of any employee exceeds to coverable limit, then the said employee can be exempted from purview of coverage from said Act provided again his said exemption is to be examined and watched as per proviso to section 2(9) & Rule 50 as mentioned above. If the wages of an employee by adding his Production Incentive/Attendance Bonus in base month of April exceeds to coverable limit (presently Rs.15000), then said employee is exempted from said Act, but his coverage is continuously to be watched for rest of contribution period. For example if his Production Incentive is reduced in the Month of May, then from this month, the said employee will again be covered/coverable under said Act and that too till the close of contribution period i.e. upto September.
3. There may be various court judgments including judgments of Hon'ble Supreme Court announcing that such and such allowances are wages, but it is difficult to find a judgment on the point as to how to cover or exempt employees in cases when the amounts of Production/Attendance etc. Bonus differ from month to month. Therefore, in my opinion, it is the work of your HR people/Time Office Incharge or Accounts Persons who deduct and cover employees under said Act. Though, in such cases where the wages of Production/Attendance Bonus etc. change from month to month, it is a difficult task to watch the compliance and coverage every month, but we have no alternative except to make compliance of above Act and rules/regulations framed thereunder. Otherwise, the Social Security Officer of ESIC, at the time of Inspection will be duty bound to report all such mistakes. By adding the amounts of wages of Production/Attendance Bonus,(and also of Overtime), the average wages of the covered employee will increase and accordingly they will get benefits from ESIC at the enhanced rates.
4. If deemed fit, I will suggest to approach the nearest Regional/Sub-Regional Office of ESIC to which your unit is attached and seek their advise in writing also in the matter.
From India, Noida
2. I feel that the classification of wages as "variable" and "non-variable" is no where mentioned in the said Act. If on the basis of Production Incentive/Attendance Bonus etc. (all items excluding Overtime) the wages of any employee exceeds to coverable limit, then the said employee can be exempted from purview of coverage from said Act provided again his said exemption is to be examined and watched as per proviso to section 2(9) & Rule 50 as mentioned above. If the wages of an employee by adding his Production Incentive/Attendance Bonus in base month of April exceeds to coverable limit (presently Rs.15000), then said employee is exempted from said Act, but his coverage is continuously to be watched for rest of contribution period. For example if his Production Incentive is reduced in the Month of May, then from this month, the said employee will again be covered/coverable under said Act and that too till the close of contribution period i.e. upto September.
3. There may be various court judgments including judgments of Hon'ble Supreme Court announcing that such and such allowances are wages, but it is difficult to find a judgment on the point as to how to cover or exempt employees in cases when the amounts of Production/Attendance etc. Bonus differ from month to month. Therefore, in my opinion, it is the work of your HR people/Time Office Incharge or Accounts Persons who deduct and cover employees under said Act. Though, in such cases where the wages of Production/Attendance Bonus etc. change from month to month, it is a difficult task to watch the compliance and coverage every month, but we have no alternative except to make compliance of above Act and rules/regulations framed thereunder. Otherwise, the Social Security Officer of ESIC, at the time of Inspection will be duty bound to report all such mistakes. By adding the amounts of wages of Production/Attendance Bonus,(and also of Overtime), the average wages of the covered employee will increase and accordingly they will get benefits from ESIC at the enhanced rates.
4. If deemed fit, I will suggest to approach the nearest Regional/Sub-Regional Office of ESIC to which your unit is attached and seek their advise in writing also in the matter.
From India, Noida
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