‘Production linked incentives’, whether, wages?

Recently, the Kerala high court was  confronted with an interesting question whether ‘production linked incentives‘ can be considered as wages for determination of ESI contributions. In that case of ESI v Traco Cable Co. Ltd., the employer had bagged an order from BSNL which required increased production from the employees. Therefore inorder to appease the employees, the employer issued an unilateral-voluntary notice introducing an adhoc incentive scheme with a view to enhance production, whereby the impugned Production-Linked-Incentive was granted to the employees. According to the employer, the payment was not made under any of the settlements within the meaning of S.12 or 18 of ID Act, but was a  voluntary payment, and therefore not ‘wages’ liable to pay ESI contributions.

Section 2(22) of ESI Act defines wages :-

22(2) ‘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;
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.

The court after analying the contentions of the respective parties held that the production-linked incentive/incentive bonous paid by employer to employees would fall under Thirs part of the definition clause, namely it would constitute additional remuneration.  It is not necessay to dwell into question as to whether the payment become obligatory on the basis of a contract express or implied, since such an enquirey is relevant only to First Part of definition clause of wages. Therefore court held that production-linked-incentives are ‘wages’ liable to be reckoned for payment of ESI


About Thomas Geeverghese

Vayaliparambil, Perumbavoor | Advocate, Ernakulam
This entry was posted in Employees state insurance and tagged , , , , , . Bookmark the permalink.


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