Clarification on ESIC and PF Deductions for Arrears and Incentives

Respected All,

Could anyone please guide me on whether ESIC and PF deductions are applicable when we pay increment arrears to employees? Additionally, I would like to know if it is mandatory to deduct ESIC & PF on any incentives paid to employees.

Your assistance on this matter would be greatly appreciated.

Arrears of salary will not attract ESI. But you have to pay EPF on the amount. It should be paid along with the month's contribution failing which you it will be considered as arrear payment of PF on omitted wages. Therefore, care should be taken while paying PF on arrears of wages.

Incentives are outside the scope of wages for PF purposes. But if the incentive is paid every month along with wages, then it will attract ESI. The law is that any allowance paid to employees in an interval of more than two months shall be excluded from ESI contribution. therefore, if you pay incentives every quarter, then it will not attract ESI.