Conveyance allowance is NOT ‘Wages’ u/s 2(22) of the ESI Act.

 

The hon’ble SC in “ESI Corporation Vs. M/s Texmo Industries[SLP (C) No. 811/2021]”, held that Conveyance allowance is NOT ‘Wages’ u/s 2(22) of the ESI Act. At para 14, the SC observed “From the definition of wages in Section 2(22) of the ESI Act, it is amply clear that wages includes remunerative payments, but does not include compensatory payments”.

The conveyance allowance paid to an employee is in the nature of compensatory payments, thus outside the scope of term ‘Wages’. However, the SC has given a point of caution, where the amount booked as conveyance allowance may be considered as WAGES. At para 25, the hon’ble SC observed as under:

“25. Conveyance Allowance, on the other hand, compensates expenses that might be incurred by an employee for reporting to his usual place of work or to any other place of work, where he may have to report. If an employer were to provide the employee with accommodation within walking distance from his place of work and that employee were not required to go to any other place in connection with his duties under his contract of employment, the employee may not have to incur any expenditure in connection with his employment. In such a case, Conveyance Allowance would be redundant and might be construed as part of allowance consisting wages”.

Therefore, the employer must take due care while preparing the Salary structures. Owing to the above Supreme Court Judgment, in some borderline cases, the employees having gross salary of Rs. 21100 with wage structure comprising of Basic: 17000, HRA: 2500, Conv: 1600 who was NOT earlier a member of ESI would now come within the ambit of ESI.

 

By Puneet Gupta (Advocate)