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ESIC & EPF......

(Querist) 11 April 2008 This query is : Resolved 
Dear All

Can Incentives and Over time wages be a part of wages while calculating ESI contribution as well as PF contribution.

H. S. Thukral (Expert) 11 April 2008
Dear Mr. Soni
Basic Wage under the EPFAct is defined as:
2(b) "basic wages" means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by the employer;

Section 6 . Contributions and matters which may be provided for in the Scheme.-

The contribution which shall be paid by the employer to the Fund be ten per cent of the basic wages, dearness allowance and retaining allowance,if any), for the time being payable to each of the employees whether employed by him directly or by or through a contractor and the employees' contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires be an amount not exceeding ten per cent of his basic wages, dearness allowance and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section]:

PROVIDED that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words ten per cent, at both the places where they occur, the words twelve per cent shall be substituted

As such no contibution is payable towards Provident Fund on incentives and overtime wages

Wages under the ESI Act are defines as
Section 2(22) "wages" means all remuneration paid or payable in cash lo 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 authorised leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any,paid at intervals not exceeding two months, but does not include-

(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) any travelling allowance or the value of any travelling concession;

(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) any gratuity payable on discharge;

Therefore overtime wages and incentives become part of wages for the purpose of contribution towards ESI at the rate specified by notification from time to time.

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