>> How wages are computed for payment of contribution? 

The following items are taken into account for computation of wages for payment of contribution. 
a) Basic Pay, Wages, Salary; 
b) D.A./HRA/CCA/overtime/officiating allowance/Night shift allowance I efficiency allowance/ Heat, Gas,        Dust allowance/ Education allowance/ Food & Tea allowance/ conveyance allowance; 
c) Wages/salary/ pay for weekly off and public holidays; 
d) Commission paid to sales staff; 
e) Subsistence allowance paid to an employee during the period of suspension; 
f) Attendance Bonus or incentive or exgratia in lieu of Attendance Bonus or production incentive; 
g) Regular Honorarium or salary or remuneration paid to a Director; 
h) Collection Batta paid to running staff. 
i) Actual payments made towards leave salary, layoff compensation, or wages for strike period. 
Any other remuneration paid or payable in cash to an employee if the terms of contract of employment, expressed or implied were fulfilled. 

>> If the wages of an employee exceeds Rs. 15,000 in a month, can he be treated as not covered and deduction of contribution from his wages Is stopped? 

If the wages of an employee (excluding remuneration for overtime work) exceeds the wage limit prescribed by the Central Government after start of contribution period, he continues to be an employee till the end of that contribution period and contribution is to be deducted and paid on the total wages earned by him. 

>> What is the effect of Increase In wages from a retrospective date? 

In case the wages of an employee is increased from a retrospective date resulting in crossing the wage limit prescribed, its effect on coverage of that employee is only after expiry of the Contribution period during the currency of which such increase is announced or declared. The contribution on enhanced wages is also payable from the month in which such increase is announced. There is no need to pay the contribution on the arrears for the period prior to the month of declaration/announcement/agreement. 

>> Why contribution should be paid on the total wages beyond the wage ceiling limit when an employee crosses the wage limit prescribed by the Central Government? 

Any employee who crosses the prescribed ceiling limit in any month at any time after commencement of the contribution period, continues to be an employee till the end of that contribution period. 

Though there is a wage ceiling limit for coverage of an employee, there is no ceiling limit in the definition of wages for payment of contribution. Hence contribution is payable on the total wages without any ceiling limit. 

>> Why over-time is to be excluded for wage ceiling limit for coverage of an employee? 

Overtime is not a regular and continuous payment, but it is of an occasional nature. If overtime is also taken for wage limit for coverage of an employee, he may be going out of coverage for some time and again coming within the orbit of the scheme, when overtime is not there. This frequent Interruption from the scheme deprives him of the benefits admissible under the scheme even after making payment of contribution for a part of contribution period. To ensure continued security and protection, overtime is excluded for determining the wage ceiling for coverage of an employee. However, it is included for payment of contribution to cover the risk during the period he was on overtime work, and to enable him to draw cash benefits at an enhanced rate, as by adding overtime wages to his average daily wages, he is fitted in to the next higher slab in the Standard Benefit table in Rule 54 for claiming cash benefits. 

If you enjoyed this post and wish to be informed whenever a new post is published, then make sure you subscribe to my regular Email Updates. Subscribe Now!

Thanks For Making This Possible! Kindly Bookmark and Share it:

Technorati Digg This Stumble Facebook Twitter Delicious

Recent Posts


 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.

Recent Comments

| THE ESIC ACT, 1948 © 2009. All Rights Reserved | Template by My Blogger Tricks .com |