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CONSTITUTION OF WAGES UNDER THE EMPLOYEES STATE INSURANCE ACT, 1948

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CONSTITUTION OF WAGES UNDER THE EMPLOYEES' STATE INSURANCE ACT, 1948
By: Mr.M. GOVINDARAJAN
July 20, 2010

Definition of 'Wage':

                        Sec. 2 (22) of the Employees' State Insurance Act, 1948 defines the term 'wages' as all remuneration paid or payable in cash to an employee, if the terms of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized 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 traveling allowance or the value of any traveling 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.

All employees in factories or establishments to which this Act applies shall be insured in the manner prescribed in this Act.  The contribution payable in respect of an employee shall comprise contribution payable by the employer and contribution payable by the employee.  The contribution shall be paid at such rates on wages as may be prescribed by the Government. 

The question as to whether a particular amount paid constitutes 'wages' or not has to be decided with reference to the particular facts of each case.   In order to fall within the scope of the first part of the definition it must be remuneration payable to an employee under the terms of contract of employment, express or implied.  The amount payable must be capable of being demanded as a matter of right.  The employer should not be in a position to withdraw from his agreement at his discretion. 

                        The following are the case laws in which the Courts declared the payment constituting as wage or not:

Payment constituting as no wage:

Additional remuneration which is paid not on account of the fulfillment of the terms of the contract of employment is not wages - Baidyanath Ayurved Bhawan (P) Ltd., V. ESI Corporation and others - 1975 (2) LLJ 128;

  • Attendance bonus paid one month after the end of each quarter does not fall under any category or class mentioned in the definition - ESI Corporation and another V. Bata Shoe Co (P) Ltd., - 1986 (1) LLJ 138;  In another case 'Regional Director, ESI Corporation, Ahamedabad V. Accumax Ltd., - 2001 (2) LLN 729 the Court held that the employer making of attendance bonus as part of a scheme which was neither statutory nor under a settlement which is payable once in three months out of employer's own volition, does not fall within the meaning of 'wages' under Sec. 2(22) of the Act;
  • Bata of any type is not covered under 'wage' if it is not covered by the second part of the definition clause of wages.  The Kerala High Court in 'ESI Corporation V. K.P. Vinod' - 1991 (79) FJR 207, held that the amount paid to the running staff as daily bata or allowance while on traveling duty fell within the exception clause of the definition;
  • Conveyance allowance - It was held by the Division Bench of Madras in 'ESI Corporation, Madras V. Sundaram Clayton Ltd.,' - 2004 (1)LLN 630 that though the payment towards conveyance allowance falls within the ambit of additional remuneration, it comes under the exclusion clause provided under the definition.   The conveyance allowance paid to the employees for traveling from place of residence to the place of work has to be construed as traveling allowance which has been excluded from the purview of the definition. 
  • Gratuitous payment - Additional remuneration even beyond the terms of the contract of employment can be treated as wages only if such remuneration is paid at intervals of not more than two months.   Gratuitous paymenteffected once in a year cannot fall within the definition of wages under Sec. 2(22) of the Act. - ST Reddiar & Sons V. Regional Director - 1989 (2) LLJ 285;
  • Inam - It was held by Andhra Pradesh High Court in 'Vijayawada Bottling Co. Ltd., V. ESI Corporation and Chairman, Industrial Tribunal - I, Hyderabad and others - 2004 (4) LLN 155 that 'inam' does not come within the meaning of wage.
  • Interim relief - The interim relief, paid to the workers are only ex-gratia payment and they do not call for the contribution under the Act. - Sree Sivakami Mills Ltd., Madurai V. ESI Corporation, Madras - 2001 (1) LLN 466;
  • One time payment - Any payment that is to be paid as one time and if liability of the employer for making that payment is not a recurring one, it will not be covered by the definition of the term 'wages' - ESI Corporation V. Mukund Iron and Steel Works Ltd., - 2001 (1) LLN 666;
  • Payment to apprentice - A paid apprentice is not an employee under the Act and that what he receives during the period of apprenticeship is not wage - ESI Corporation, Bombay V. Indian Home Pipe Company - 1963 (2) LLJ 104;
  • Stipend - Stipend is not covered - ESI Corporation V. Andhra Prabha (Private) Ltd., - 2000 (4) LLN 73;
  • Subsidy - If there is no canteen, the employee is denied the supply of food item at a subsidized rate.  In order to make good the loss, the amount paid to the employee is not really an allowance towards meals but only a distribution of the subsidy which the employer was bound to give as per the contract.   Hence the contribution is not leviable on the amount paid to the employees by way of canteen subsidy - Regional Director, ESI Corporation V. Aluminium Industries Ltd., - 2003 (103) FJR 280;
  • Payments constituting as wage:

             Attendance Bonus - if it is payable to the employee under the terms of a settlement which has become part of the contract of employment, the bonus will fall within the first part of the definition of 'wage' - Wellman (India) Pvt. Ltd., V. ESI Corporation' - 1993 (2) LLN 645;

             Efficiency incentive/bonus - According to the Karnataka High Court, efficiency incentive/bonus paid to the employees come within the meaning of Sec. 2(22) of the Act - M/s Escorts Limited and others V. Regional Director, ESI Corporation, Bangalore - 2004 (102) FLR - 1107;

             Free Boarding and lodging - Remuneration in the form of free boarding and lodging for work is wages as per Sec. 2(22) - Regional Director, ESI Corporation, Mumbai V. Golden Gate Restaurant' - 2002 (1) LLJ 972;

             Holiday wages - If the employee is entitled to a holiday and entitled to be paid wages for the holiday in fulfillment of the terms of the contract, express or implied, amount so paid must be regarded as 'wages' - ESI Corporation V. Raj Cashew Co - 1992 (1) LLJ 206;

             Incentive Bonus - Where the terms of a particular incentive bonus scheme show that the employer unilaterally and gratuitously offered to pay incentive bonus and at the same time reserved his right to withdraw or vary the terms of the incentive scheme without consent of the employees, such scheme cannot form part of the terms of employment express or implied.   But when incentive bonus is payable in terms of agreement made either at the time of commencement of employment or at the subsequent stage and such provision for incentive bonus is not liable to be withdrawn or varied, the incentive bonus must be considered to be payable in terms of employment. - Reyrolle Burn Ltd., V. ESI Corporation and another - 1980 (1) LLJ 30;

             Night Shift Allowance - If it is payable in pursuance of the agreement squarely falls within the definition of 'wages' - ESI Corporation, Madras V. Amalgamations Repco Limited, Madras - 1983 (2) LLJ 193;

             Other allowances - The term 'wages' as used in the Act, will include house rent allowance, heat, gas and dust allowance - Harihar Polyfibres V. ESI Corporation - 1984 (65) FJR 199;

             Overtime wages - In 'Indian drugs and Pharmaceuticals Ltd., V. ESI Corporation - 1997 (1) CLR 193, the Supreme Court held that when an employee does overtime work, there emerges an implied contract between the employer and employee.   There is no need to write on each occasion separately on the letter of appointment.   It becomes integral part of original or revised contract of employment from time to time.  The employer is obligated to pay wages when the employee does work.   This will be, in addition to payment of the waves he receives for normal work.    In other words, both the remuneration received during the working hours and overtime constitutes a composite wage and thereby it is a wage.

             Holiday wages - The Calcutta High Court has given regard to the Apex Court's judgment in ESI Corporation V. Malabar Cashew and Allied Products where it has observed that wages paid on holiday to an employee would form part of 'wages' -ESI Corporation V. Ramadhar Jaiswal and another - 2004 (3) LLN 682;

             Sales Commission - Sales commission received by employees once in a month, which is an additional remuneration paid at intervals not exceeding two months would attract contribution under the Act. - Gem and Company, Madras V. ESI Corporation, Madras  - 2000 (3) LLN 310;

             Subsistence Allowance - it cannot be said that the subsistence allowance is not the remuneration paid to an employee even though it is paid at a reduced rate - Regional Director, ESI Corporation V. Popular Automobiles - 1998 LIC 121;

    From the discussions of the above case laws it is clear that whether the payment amount to wages shall be depending on the facts of each case.  If the payment is based on a settlement and has become a part of the contract of employment then such payment will fall within the first part of the definition of 'wage'.

     

     
    By: Mr.M. GOVINDARAJAN - July 20, 2010
     
     
    Discussions to this article

    It is observed from this article that Travelling Allowance/ Travelling Concession/ Conveyance Allowance do not constitute to the Wages as per ESIC. PLease confirm that payment of these on fixed monthly basis may be allowed without esi deduction.
    By: Usha Iyer
    Dated: 02/08/2010

     
     

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