Article (September-2018)

Articles

Wages/allowances for ESI contributions

H.L. Kumar

Designation : -   Advocate, Supreme Court

Organization : -  New Delhi

01-Sep-2018

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The term 'wages' has been defined in many statutes in as many ways. Section 2(22) of the Employees' State Insurance Act defines 'wages' in entirely different manner and is produced below:
2(22) "'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 authorised 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 -
(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."
An analysis of the definition of wages 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 of authorised leave, lock-out, 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, or provident fund, or under the Act, the travelling allowance or the value of any travelling concession, 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 words 'all remuneration' and as such it has been attracting controversy more particularly when it does not clarify which of allowances or perks will form the part of 'wages'. Although the definition is inclusive and exclusive both, yet this issue has repeatedly gone to courts for interpretation in innumerable cases.
In view of the above, it becomes imperative to know the implications of judicial interpretations of the term 'wages' besides clarification made by ESI Corporation.
AMOUNT/ALLOWANCES WHICH MAY OR MAY NOT BE TREATED AS 'WAGES' FOR CONTRIBUTION
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.
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.
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., 1986 LLN 515. 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, 1990 LLR 264.
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, 2000 LLR 431, 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)
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)
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 :-
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.
Tiffin/Food/Milk/Lunch allowance paid in cash with deduction for leave or absence etc. may not be treated as wages.
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)
Hamals/Coolies Employed at a Particular 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. The Bombay High Court in the case of Parley Bottling Co. Ltd. vs. ESIC, Bombay, 1989 (59) FLR 320 and Supreme Court in the case of ESIC vs. Premier Clay Products, have held this view.