Whether the allowances paid to the employees are subject to E. S1. Contribution deduction?

The allowances have been excluded by section 2(22) (b) and (c) of the E.S.I. Act. In a case it has been held that the cycle allowance given to the employees is nothing but traveling concession and the value of cycle allowance falls in exception (b) of section 2(22) of the Act. Similarly, the uniform allowance paid by the employer cannot be added to wages for calculating contribution under the Act All the same the payment of milk, tea and egg allowances has also been excluded from the purview of the wages.

Payment of lnam paid by the employer in pursuance of an agreement will be 'wages' notwithstanding that agreement was not a term of the original contract. In a case before the Supreme Court, it has been held that the term 'wages' includes House Rent Allowances; Heat Gas and Dust Allowance as well as Incentive Allowance.

1.Hyderabad Asbsestos Cement Product Ltd., Ballabgarh vs. Regional Director, ESI. Corpn., Chandigarh. 1982 Lab. IC 88 (Punjab) (NOC); Employees State Insurance Corpn. Chandigarh vs. Gedore Tools (India) P.Ltd. Faridabad, 1982 Lab. IC87 (Punjab) NOC; Employees State Insurance Corpn. NewDelhi vs. Pratap Names Labels Factory. 1982 Lab.IC41 (Delhi) (NOC)

2.Employees' State lnsurance Corp. vs. Enfield India, 1995 LLR 81 (Madras High Court).

3.Harihar Polyfibres vs. Regional Director, ESI Corpn. AIR 1984 SC 1680; 1984 Lab. IC 1568; 1984 (65) FJR 199.


Is it obligatory on the part of an employer to deposit contribution or other dues when he challenges the liability in the Employees' Insurance Court?

Section 2-B as inserted by amendment of Act 29 in 1989 provides that any dispute between a principal employer and the E.S.I. Corporation in respect of any contribution or any other dues could be raised by the principal employer in, the Employees' Insur­ance Court only when he has deposited with the court fifty per cent of the amount due from him as claimed by the Corporation. How­ever, the court may for reasons to be recorded in writing waive or reduce the amount to be deposited under this sub-section.


Whether bonus or ex-gratia paid by an employer to his employees will be treated as wages as defined under E.S.I. Act.

No. Where the bonus paid by employer to its employees was in the nature of ex-gratia payment or, as has been described in one of the settlements, employer has paid as a gesture of goodwill on the part of the respondent. The bonus in question was neither in the nature of production bonus nor incentive bonus nor custom­ary bonus nor any statutory bonus. The bonus payable 'one month after the end of each quarter' has been held that the bonus in ques­tion did not fall under any category or class mentioned in the definition of 'wages' as contained in section 2(22) of the Act.

Regional Director, E.S.I.C. Be another V5. Bata Shoe Co. (P) Ltd., AIR 1986 sc 237; 1986 Lab. IC 72.


When and under what circumstances the incentive bonus be treated as wages for payment of ESI's contributions?

The E.S.I. authorities can 'ask for payment of incentive bonus payable to the employees more particularly when such an incentive is linked with production. In this' context reference is rnade to one case wherein it was held that Production Bonus paid to the employees for more production falls within the latter part of definition of Wages in section 2(22) of the ESI Act.1 The Bombay High Court has also held that the amount paid to employees towards incentive or production bonus will constitute wages for ESI purposes.2

1. Shourie Duplicators Pvt. Ltd. and others vs. E.S.I.C., 1992 II LLJ 443 (Delhi HC).

2. All India Glass Works (P) Ltd. vs. Regional Director ESI Corn. & Another 1995 LLR 28 (Bombay H.G).


Will an employer be liable to pay ESI contributions when the establishment is closed and deductions have been made from the wages of the employees?

Under section 40 of the Act, primary liability of the employer is to not pay only his contribution but also the employee's contribution. Therefore, he cannot be heard to contend that since he had not deducted the employee's contribution from the wages of the employees, he could not be made liable for the same. The Supreme Court has held that the object of making a deeming entrustment sub-section (4) of section 40 will be altogether rendered nugatory if such a contention were to be accepted. After all, when he makes employee's contribution, he is entitled to deduct from their wages. It is rather strange to conclude that the demand could not be enforced against a closed business. If this finding were to be accepted, it would not promote that the scheme and avoid the mischief. On the contrary it would help perpetrate the mischief. The Supreme Court observed that any employer can easily avoid his statutory liability and deny the beneficial piece of social security legislation to the employees, by closing down the business before recovery. That certainly is not the intendment of the Act. They hold, as the High Court has done, would set as naught all these beneficial provisions. It is equally fallacious to conclude that because the employees had gone away, there is no liability to contribute. It has to he carefully remembered that the liability to contribute arose from the date of commencement of the establishment and is a continuing liability till the closure. The very object of establishing a common fund under section 26 for the benefit of all the employees will again be thwarted if such a construction is put.

ESI Corporation vs. Hotel KalpakaInternational, 1993 (1) KLT28I"'1993 LLR 117 (Supreme Court).


Whether E.5.1. Contributions are payable on overtime?

There has been differences of opinion of various High Courts on this point. Finally the Supreme Court has held that overtime wages will be liable for deductions for ESI's contributions. The employer is obligated to pay wages when the employee does work beyond his duty hours. This will be, in addition to payment of the wages an employee receives for normal work. In other words, both the remuneration received during the working hours and overtime constitute a composite wages and thereby it is a ‘wage' within the meaning of section 2(22) of the Act. Whatever remuneration, paid or payable for overtime work, forms wages under an implied term of the contract of employment and the remuneration paid therefore forms part of the 'wages' under section 2(22) of the Act. The Supreme Court considered elaborately and held that the Act is welfare legislation and the definition of wages is designedly wide.

Indian Drugs & Pharmaceuticals Ltd. etc. vs. Employees' State Insur· .nce Corporation, 1997 LLR 1 (Supreme Court).


Whether E.S.I. contribution is payable on paid holidays?

The payment made by an employer in respect of 'paid holidays' is not 'wages' as defined in section 2(22) of the Act and, therefore, the employer is not liable to pay special contribution under section 73-A on such payments made to his employees in respect of 'paid holidays'. Be it clear that on paid holiday the employee cannot render any service, as well as employer cannot take any service from the employee. 'Paid holiday' is a holiday which could not be substituted for another holiday and under the terms of the contract, the parties agree that on that day no service would be rendered and no service would be taken and yet payment would be made. The payment, in view of the ruling reported in Nutan Mills (i\IR 1956 Bombay 336). Cannot be considered 'remuneration', because it is a payment not for services rendered or to be rendered by the employee. In this view of the matter, the payment paid towards paid holiday cannot be considered 'wages'. The Kerala High Court has also held that the wages paid for holidays allowed under Kerala Industrial Establishments (National and Festival Holidays) Act will not amount to remuneration to attract the payment of ELL's contributions.2

1. Regional Director, E.S.I.C., Ahmedabad vs. New Aswarwa Mfg. Co, Ltd., Ahmedabad, 1981 Lab. IC 90 (Gujarat High Court).

2. E51 Corporation us. Malabar Cashew Nut and Allied Products 1993 (1) CLR 199 (Kerala High Court).


Can non-payment of E.S.I. contribution be justified by an employer due to non-availability of finances?

No. Where in a case, the co-operative societies did not have resources for payment of contribution, it has been held that such a plea cannot be taken into consideration for late or non­payment of contribution. In a case it has been held that if such a plea could be entertained, every one who is made liable to pay the contribution under the E.S.I. Act will say that he has no sufficient resources to pay so that the statutory liability would not be possible to be enforced. Therefore, whether a person has sufficient resources or not., his liability under the Act is never under dispute.

South India Viscose Co-operative Stores Ltd. vs, RegionalDireclor Employees' State Insurance Corpn. 19B6 (6B) F.L.R. 329 (Mad. He).


Whether the payment of bonus will be deemed as 'wages' under E.S.I., i/it is paid under an incentive scheme stipulating that the same is not a term of contract 0f employment?

The 'wages' under the E.S.1. Act is very wide which includes house rent allowance, night shift allowance, incentive allowance and heat gas and dust allowance etc. A similar point has arisen before the Allahabad High Court as to whether the remunera­tion paid by the employer under incentive scheme to his employees constitutes wages within the meaning of section 2(22) of the Employees' State Insurance Act. The incentive scheme provided that the incentive bonus was not a term of contract of employment. The High Court held that an employer cannot invoke doctrine of promissory estoppel against E.S.I. Corporation and as such the bonus is paid to the employees under the incentive scheme will be treated as 'wages', liable to be E.S.I. contribution. In another case, while holding that the 'attendance bonus as 'wages' the Bombay High Court has held that the scheme of attendance bonus would be deemed as a term of contract of employment.

1.Dass Hitachi Pvt Ltd., Delhi vs. E.S.L Corporation, New Delhi, 1987 Lab. & Ind. Cases 14.

2.Employees' State Insurance Corp. vs. Indian Dyestuffs Industries Ltd., 1986 Lab. IC 1217; (1986) 2 Cur. LR 1~8; 1986(2) LLN 515; 1986 (53) FLR 730.


Will the subsidy of life insurance premium be treated as 'wages' to attract the contributions for E.S.I.?

Yes. In one case, while enlarging the term 'any other remuneration' outside the term of contract of employment and then giving the examples of house rent allowance, night shift allow­ance, incentive allowance, heat, gas and dust allowance as wages, it has been held that the subsidy given for life insurance premium should also (over and come under this clause since it is not one of the exceptions mentioned in section 2(22) of the E.S.!. Act.

E.S.I.C. vs.J.S. & W.Mills Ltd., 198857 F.LR 32 (Raj. HC).

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 Is extended in area-wise to factories using power and employing 10 or more persons and to non-power using manufacturing units and establish-ments employing 20 or more person upto Rs.15,000/- per month w.e.f. 01.04.10. It has also been extend-ed upon shops, hotels, restaurants, roads motor transport undertakings, equip-ment maintenance staff in the hospitals.


 Drawing wages Upto Rs.15,000/- per month Engaged either directly or thru’ contractor


 Employers’ 4.75%

 Employees’ 1.75%


 The total amount of contribution (employee’s share and employer’s share) is to be deposited with the authorized bank through a challan in the prescribed form in quadruplicate on ore before 21st of month following the calendar month in which the wages fall due.


 Medical Benefit
 Sickness Benefit(SB)
 Maternity Benefit(MB)
 Disablement Benefit
 Dependants’ Benefit(DB)
 Funeral Expenses

 In addition, the scheme also provides some other need based benefits to insured workers.


 Registers/files to be maintained by the employers


 If the person joined insurance employment for the first time, say on 5th January, his first contribution period will be from 5th January to 31st March and his corresponding first benefit will be from 5th October to 31st December.


• Basic pay
• Dearness allowance
• House rent allowance
• City compensatory allowance
• Overtime wages (but not to be taken into account for determining the coverage of an employee)
• Payment for day of rest
• Production incentive
• Bonus other than statutory bonus
• Night shift allowance
• Heat, Gas & Dust allowance
• Payment for unsubstituted holidays
• Meal/food allowance
• Suspension allowance
• Lay off compensation
• Children education allowance (not being reimbursement for actual tuition fee)


• Contribution paid by kthe employer to any pension/provident fund or under ESI Act.
• Sum paid to defray special expenses entailed by the nature of employment – Daily allowance paid for the period spent on tour.
• Gratuity payable on discharge.
• Pay in lieu of notice of retrenchment compensation
• Benefits paid under the ESI Scheme.
• Encashment of leave
• Payment of Inam which does not form part of the terms of employment.
• Washing allowance for livery
• Conveyance Amount towards reimbursement for duty related journey


 Different punishment have been prescribed for different types of offences in terms of Section 85: (I) (six months imprisonment and fine Rs.5000), (ii) (one year imprisonment and fine), and 85-A: (five years imprisonment and not less to 2 years) and 85-C (2) of the ESI Act, which are self explanatory. Besides these provisions, action also can be taken under section 406 of the IPC in cases where an employer deducts contributions from the wages of his employees but does not pay the same to the corporation which amounts to criminal breach of trust.

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