3
Request for Confirmation before Implementation
Wages
Washing Allowance:
It is a sum paid to defray special expenses entailed by the nature of employment, and as such, this amount does not constitute wages. (In lieu of old instructions issued vide Memo No. Ins.III/2/1/65 dt. 8.2.1967)
Suspension Allowances/Subsistence Allowance
During the suspension period, the employee is not allowed to work actually, and he is not given full remuneration. However, the permissible subsistence allowance is paid to the employee as 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 considered part of the wage as defined under Sec.2(22) of the ESI Act, and consequently, a contribution is payable.
The Supreme Court also held in the case of RD, ESIC Vs. M/s. Popular Automobiles, etc., in its judgment dt. 29.9.97 in Civil appeal no. 3850 of 1993 that suspension/subsistence allowance is considered wage, and contribution is payable under Sec.2(22) on the said amount. (In lieu of earlier instructions 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 cases where the employer finds the need to have work done expeditiously, in addition to the normal work during working hours, the employer offers the employee to do overtime work after regular working hours. When an employee does overtime work, it is considered an acceptance of the same, creating a concluded implied contract between the employer and the employee.
Both the remuneration received during working hours and overtime constitute a composite wage and are considered a wage within the meaning of Sec.2(22) of the ESI Act. Therefore, a contribution is payable on the overtime allowance. However, overtime allowances are only considered as wage for the purpose of charging the contribution and not for the purpose of covering the employee under the Scheme.
The same view was held by the Supreme Court in its judgment 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 employees could not be treated as wage for the purpose of charging a contribution under Sec.2(22) unless the periodicity of the payment is more than 2 months. The 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 under 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 workers as additional remuneration. Such additional remuneration, in order to become wages, has to be paid at intervals not exceeding 2 months. Thus, there has to be actual payment, and hence no contribution is payable, provided the 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 services rendered by him. If Inam is being paid for special skill, higher responsibilities, or additional duties, it may be considered as remuneration, and contribution is payable. Where the employer has introduced an Inam scheme but has the right to revise or withdraw it at his discretion, the payment may not be treated as wages, and no contribution is payable provided the payment is made at an interval exceeding two months.
Where there is no written scheme of Inam but the employer makes payments under the head Inam based on an understanding, the periodicity and nature of payment would determine whether contribution is chargeable. If 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 a layoff period, certain wages are paid to the employee as remuneration for remaining attached to the factory/establishment, even though the employee is not given actual work. Such payments for the period of layoff are considered wages under Sec.2(22) of the ESI Act, and contribution is payable. (Earlier instructions were issued in 1968)
Annual Commission
Sales commission falls within the 3rd category of wages as defined under the Act as additional remuneration. There has to be actual payment, not just payable, at intervals not exceeding two months for commission to be considered wages. The annual commission is excluded from the definition of wages, and no contribution is payable. (Earlier instructions were issued vide Hqrs. letter No. Ins.III(2)-2/71 dated 10.8.71)
House Rent Allowance
House Rent Allowance is considered wage when paid. Notional amounts of house rent cannot be presumed as wages for determining coverage. Supreme Court has held in certain cases that house rent allowance is considered 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
Night Shift Allowance, Heat, Gas & Dust allowance are considered wages under Sec.2(22) of the ESI Act as additional remuneration paid for performing duty during night time. This view was supported by the Full Bench of Karnataka High Court and the Supreme Court in certain cases. Hence, contribution is payable on the 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
Conveyance allowance, as per a wage settlement or terms of employment, should be treated as wages under section 2(22) for all purposes except specific cases like reimbursement of expenses for duty-related journeys. (Earlier instructions were issued vide letter No. P-11/13/97-Ins.IV dated 2.2.1999)
Service Charges
Service charges collected by the management of a hotel on behalf of employees in lieu of direct tips are not considered wages under Section 2(22) of the ESI Act, based on a ruling by the High Court of Jaipur. 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
Amounts paid by the employer in lieu of medical benefits are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. (Earlier instructions 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
Regular payments made by the employer to employees as newspaper allowance are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. However, reimbursement of newspaper costs does not attract contribution.
Education Allowance
Monthly education allowances for children studying in schools/colleges are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. Reimbursement of educational expenses does not attract contribution.
Drivers Allowance
Drivers' allowance paid to employees for hiring a driver is considered a wage under Section 2(22) of the ESI Act,
From India, Mumbai
Wages
Washing Allowance:
It is a sum paid to defray special expenses entailed by the nature of employment, and as such, this amount does not constitute wages. (In lieu of old instructions issued vide Memo No. Ins.III/2/1/65 dt. 8.2.1967)
Suspension Allowances/Subsistence Allowance
During the suspension period, the employee is not allowed to work actually, and he is not given full remuneration. However, the permissible subsistence allowance is paid to the employee as 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 considered part of the wage as defined under Sec.2(22) of the ESI Act, and consequently, a contribution is payable.
The Supreme Court also held in the case of RD, ESIC Vs. M/s. Popular Automobiles, etc., in its judgment dt. 29.9.97 in Civil appeal no. 3850 of 1993 that suspension/subsistence allowance is considered wage, and contribution is payable under Sec.2(22) on the said amount. (In lieu of earlier instructions 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 cases where the employer finds the need to have work done expeditiously, in addition to the normal work during working hours, the employer offers the employee to do overtime work after regular working hours. When an employee does overtime work, it is considered an acceptance of the same, creating a concluded implied contract between the employer and the employee.
Both the remuneration received during working hours and overtime constitute a composite wage and are considered a wage within the meaning of Sec.2(22) of the ESI Act. Therefore, a contribution is payable on the overtime allowance. However, overtime allowances are only considered as wage for the purpose of charging the contribution and not for the purpose of covering the employee under the Scheme.
The same view was held by the Supreme Court in its judgment 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 employees could not be treated as wage for the purpose of charging a contribution under Sec.2(22) unless the periodicity of the payment is more than 2 months. The 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 under 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 workers as additional remuneration. Such additional remuneration, in order to become wages, has to be paid at intervals not exceeding 2 months. Thus, there has to be actual payment, and hence no contribution is payable, provided the 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 services rendered by him. If Inam is being paid for special skill, higher responsibilities, or additional duties, it may be considered as remuneration, and contribution is payable. Where the employer has introduced an Inam scheme but has the right to revise or withdraw it at his discretion, the payment may not be treated as wages, and no contribution is payable provided the payment is made at an interval exceeding two months.
Where there is no written scheme of Inam but the employer makes payments under the head Inam based on an understanding, the periodicity and nature of payment would determine whether contribution is chargeable. If 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 a layoff period, certain wages are paid to the employee as remuneration for remaining attached to the factory/establishment, even though the employee is not given actual work. Such payments for the period of layoff are considered wages under Sec.2(22) of the ESI Act, and contribution is payable. (Earlier instructions were issued in 1968)
Annual Commission
Sales commission falls within the 3rd category of wages as defined under the Act as additional remuneration. There has to be actual payment, not just payable, at intervals not exceeding two months for commission to be considered wages. The annual commission is excluded from the definition of wages, and no contribution is payable. (Earlier instructions were issued vide Hqrs. letter No. Ins.III(2)-2/71 dated 10.8.71)
House Rent Allowance
House Rent Allowance is considered wage when paid. Notional amounts of house rent cannot be presumed as wages for determining coverage. Supreme Court has held in certain cases that house rent allowance is considered 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
Night Shift Allowance, Heat, Gas & Dust allowance are considered wages under Sec.2(22) of the ESI Act as additional remuneration paid for performing duty during night time. This view was supported by the Full Bench of Karnataka High Court and the Supreme Court in certain cases. Hence, contribution is payable on the 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
Conveyance allowance, as per a wage settlement or terms of employment, should be treated as wages under section 2(22) for all purposes except specific cases like reimbursement of expenses for duty-related journeys. (Earlier instructions were issued vide letter No. P-11/13/97-Ins.IV dated 2.2.1999)
Service Charges
Service charges collected by the management of a hotel on behalf of employees in lieu of direct tips are not considered wages under Section 2(22) of the ESI Act, based on a ruling by the High Court of Jaipur. 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
Amounts paid by the employer in lieu of medical benefits are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. (Earlier instructions 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
Regular payments made by the employer to employees as newspaper allowance are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. However, reimbursement of newspaper costs does not attract contribution.
Education Allowance
Monthly education allowances for children studying in schools/colleges are considered wages under Sec.2(22) of the ESI Act, and contribution is chargeable. Reimbursement of educational expenses does not attract contribution.
Drivers Allowance
Drivers' allowance paid to employees for hiring a driver is considered a wage under Section 2(22) of the ESI Act,
From India, Mumbai
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