ESI: On which compontens contribution is payable

Pls update me about ESI is not applicable on what components.

E.S.I. Scheme is social security legislation and it is contributory in nature. The contribution is paid by both employer and employee at a specified rate. The rates are revised from time to time. Currently, the employee’s contribution rate is 1.75% of the wages and that of employer’s is 4.75% of the wages.

As per Section 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 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.”

Definition of wages consist of two parts, first part is including components and second part exclude some things from wages such as contribution to pf fund etc.

II. The following items will form part of the wage both under Section 2(9) i.e for considering the employee for the purpose of coverage and Section 2(22) of the ESI Act for the purpose of charging of contribution:-
· Suspension allowance/subsistence allowance
· Overtime allowance
· Inam/ex-gratia payment:
· Wages paid during layoff:
· House rent allowance
· Night shift/heat/gas & dust allowance:
· Medical allowance
· Newspaper allowance
· Education allowance:
· Drivers’ allowance
· Food/milk/tiffin/lunch allowance
· Gazetted allowance
· Wages and dearness allowance for unsubstituted holidays:
· interim relief
· Attendance bonus
· Matinee allowance which is being paid to employees in Cinema Houses
· Compensatory allowance.
· Cash handling allowance paid to Cashier.
· Supervisory Allowance.
· Additional pay paid to training staff.
· Charge allowance
· Steno/Typist allowance
· Plant allowance
· Honorarium for looking after the hospital/dispensary
· Computer allowance
· Gestetner/Photocopier/Printer allowance
· Personnel/Special allowance
· Machine allowance
· Convassing allowance
· First-aid allowance
· Personnel allowance
· Area allowance
· Exgratia payment if payment is made within an interval of two months.

II. The following items will not form part of the wage either under Section 2(9) or under Section 2(22) of the ESI Act:
· Washing allowance:
· Annual bonus:
· Incentive bonus:
· Production bonus:
· Annual commission
· Conveyance allowance
· Service charges
· Exgratia payment during strike for travelling expenses
· Saving scheme
· Payment made on account of un-availed leave at the time of discharge.
· Commission on advertisement secured for newspapers, if not paid to the regular employee.
· Fuel allowance/petrol allowance
· entertainment allowance
· shoes allowance
· payment made on account of gratuity on discharge/retirement.
· Payment made on encashment of leave.

Can Salary be deposited & then withdrawn by company?

Amount once credit in the account of employee cannot be withdrawn without permission of said employee. If by mistake or due to error of employer such thing happen then also law do not permit employer to take arbitrary action. In contract Act there is specific provision to deal with this sort of situation. Section 72 of Indian contract Act states that payments or delivery made under mistake or coercion must be made good or be returned. In Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi it was made clear that money paid under mistake is recoverable whether the mistake is of fact or of law but by lawful way.


Some of my friends will ask why we should not recover amount directly from the account of employee. When we can? Yes, you can recover amount from account of employee if you have good term with bank but it can create legal issues for employer and bank. To have bird eye view of issue we have to understand few points:

1. There are three parties in this case. i.e Employer, Employee and Bank.
2. What was the mistake due to which wrong amount credit to employee account and by whom this mistake was done?
3. Is there any clause in agreement which stipulate that employer or bank can recover amount back from the account of employee. If amount credit by mistake.

Employer and employee are having master and servant relationship. Same time Bank and employee are having customer (consumer) relationship. So we have to take into consideration not only employment law but customer, contract and banking law also.

If mistake was on the part of banker than he can recover amount back from the customer (employee) because in standard contract there is always clause, which give right to banker to recover back amount which is credit by mistake. But I am not sure whether there is any clause in contract (salary account agreement) which gives right to employer to recover back amount from employee. If there is no such clause then employer legally cannot recover back amount from account of employee whether it credit by mistake or not.


If we assume there is some sort of agreement like this then also how can bank recover back amount on recommendation of employer because mistake was on the part employer not on part of bank. So on this ground bank cannot recover amount from customer account.

Now coming to nature of mistake first, If mistake is like in place of crediting Rs 1000 to employee account employer had credit Rs 1200 then employer can adjust excess amount with next month salary (if possible). Second, if employee left the organisation after taking salary and his notice pay is due then amount which employee had taken is salary and notice pay is compensation. They are legally two different things so employer should recover notice pay in full and final settlement as per rules.

In a regular course employer can deposit amount into employee account but cannot withdraw the same. It can be withdrawn only when it mistakenly credited by bank. So insist of recovering amount from account of employee with help of bank. Employer should recover money directly from employee by proper and legal way to avoid any legal hassle.

Provident fund and Overtime Allowances

Whether Provident fund can be deducted on Overtime Allowances?

In PF Laws there are recurrent changes which involve more biting than a reasonable person can eschew. The practical difficulties of executing PF law can only be perceived and felt at the point of implementation.

There are some issues in minds of young HR guys whether overtime would form part of basic wages under the EPF laws. Basic wages are ordinarily susceptible to PF deduction. As per Section 6 of EPF Act and related law, PF is deducted on basic pay; DA; Retaining allowance; and cash value of food concession. Overtime allowances do not come under preview of above mentioned terms and Section 2 (b) (ii) of PF Act specifically stated that overtime is excluded from the definition of Basic wage.

The Supreme Court in Bridge and Roof Company (India) Ltd. v. Union of India, 1962 and Jay Engineering Works Ltd. v. Union of India, 1963 “very aptly unfolded the inter woven components of basic wages vis-à-vis their susceptibility to the Provident Fund Contribution. The theory that has been propounded is very obvious and simple and is good for universal application. It has been ruled that whatever is payable to all concerns and earned by all permanent employees, is included for the purpose of contribution under section 6 but whatever is not payable by all concerns or may not be earned by all employees of the concern is excluded for the purpose of contribution, irrespective of anything.” By way of example it was held that overtime allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees.

This is an Acid test which has been laid down by the Apex Court, and if we were to apply it to the overtime payment, then some discrepancies would surface. So PF cannot be deducted on overtime allowances.

Vulgar salary-What the hell it is?

Recently when I was scanning through leading newspaper I came through a word “vulgar salary”. As a HR profession I heard various names of salary such as fair salary, minimum salary, executive compensation, wages blah ..blah but this is fast time I heard term vulgar salary. How can salary be vulgar? I don’t know and don’t want to know because whatever you call it I love my salary. Which I get in my account on first day of every month.

For my readers term vulgar salary is coined by one of the cabinet minister of India. He was referring to high pay packages of CEO’s. High pay packages are burning issue all over the world. The gap between the salary of entry level employee and top hats are growing day by day. It is not good for developing country in long run.

To curb and to regulate high compensation packages new company law is in the pipe line. Hope it will give some direction but government has to see pros and cons of it before coming to any point. Till then top hats please enjoy your vulgar salary.

Recovery from Ex-employees

After full and final settlement of an ex-employee, many a times there is recovery from him/her. Some times when the amount is negligible and we can let go of it. But sometimes the amount can not be ignored. In such cases employees go absconding, don't pick up your calls or reply to your mails. We only sit waiting for the mails/ cheques/ response and they never come. How to deal with such cases? Are there any agencies doing such a work for business recoveries? Kindly guide.

I am confused how can there be notice period recovery for absconding employees. In most of the organisation when employee is absconding then HR will follow due procedure and terminate the employee and issue voluntary absconding letter. In this case there will be no notice period recovery (organisation is terminating employee because employee lost lien over job) and HR will not give reliving letter.

Now if employee resigns from the jobs but do not serve notice period. Then at time of Full & final settlement HR will know (through procedure & system of getting clearance certificate from all the departments) that there is recovery and reliving letter will not be issued till all due are paid. If employee require (most of employee require) reliving letter and positive feedback while PE check then he will clear dues.

It is not advisable to use agents for recovery because it can create legal issues and same time organisation image is on stake. If organisation want to recover money from employee than it should follow legal procedure. I will suggest if you are having lots of resigned recovery cases then check your policy. Might be your notice period duration is not reasonable. (It is found that if for entry level notice period is high than chances of recovery are more because profile do not justify long notice period.)

Resignation submitted after Last date of leaving

Please give you suggestion on, if employee is resigning after 2 months from his last date of working or date of leaving due to any reasons. While writing your suggestion please mention the reasons also.

At the time of exit of employee from the organisation two dates are very important, they are DOR (date of resignation) and DOL (date of living also known as last working date). DOR should be before DOL if it is not then most of the organisation consider DOL as a DOR. (For processing full and final settlement DOR can not be after DOL because on the bases of this date we will count notice period. if DOR is after DOL that means employee had not given notice period)

Now question arise How DOR can be after DOL? In most of the cases employee absconding from work and after sometime he send resignation letter, employee was on leave and insist of joining back he send resignation letter etc. and till that time HR had not taken action against employee.

Now coming directly to your question--If employee is resigning after 2 months from his last date of working or date of leaving due to any reasons? Whether employee can resign after 2 months of DOL will depend upon case to case and reason of delay. Most of the organisation do not accept resignation letter after such a long time. They have set procedure by which they will terminate employee and send voluntary absconding letter (in absconding case). Some how if HR accept the resignation letter (Due to any reason) then he will take DOL as a DOR and process full & final settlement. If you put DOR after DOL then it can create practical and legal issue.

Reporting To Two Bosses

I work for a reputed company as HR Executive for past 9months ,from day 1 I was reporting to my Manager operation and now we have our Head HR joined the organisation and she redesigned entire reporting structure even policy & procedures was redesigned. I was instructed to report functionally to my Manager HR (she too is a new joinee) and administratively to my Manager operation. Here starts the problem, Head HR wants me to take responsibility of handling another group of company aswell with no change in my pay but Manager operation doesnt want me to take any additional responsibility without any increase in my Pay. I really dont know what to do? This situation is applicable for every single work of mine…If she asks me to do any report he doesn’t want me to do..only after a big cold war things come better. Expecting your valuable suggestions.

You are facing problem because of office politics and reporting to two bosses who don’t communicate or work well together making it more complicated. It seems you also want or given any sign that you want increase in pay otherwise why should your boss making it an issue. Talk to your bosses and clear your picture otherwise management will think it is you who is creating problem. You have to be careful otherwise you will be caught in the crossfire. Stay attentive for any conflicting messages you receive and be careful not to put yourself in the middle of a disagreement. “Trying to broker a compromise without the input from either, or only from one, is deadly. You can approach such a situation by asking them for resolution some direction," said John Reddish. When you receive any conflicting messages from the two bosses, it is your duty to kick the problem back to them to resolve it. Avoiding the conflict is a common theme among those who have survived this experience. Communication is key to survival, so continually keep open and transparent communication with them. Remember no Favorites and no gossips.

It is obvious that you are experiencing pressure because of this situation. If you break at pressure then it might results into career problem and if you handled the situation successfully then you will go long way. Your ability to handle this situation will practically make or break your career.