PF and ESI deduction for notice pay

 NO by virtue of Contractual obligations he is liable to the PF & ESI

notice pay do not attract pf & esi.

notice pay will not attract pf and Esi , it will relate only when employee performed duty or paid leave.  

Dear Palak

You have raised this point in 'Experts'  also . Since this had skipped my attnetion in the Forum, I have replied the same in Experts. Permit me to repeat it here again

To arrive at an answer we have to see definitions of salary/wages in both the Act

Section 2 EPF &MP Act
(b) "basic wages" means all emoluments which are earned by an employee while on duty or [4] [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
Section 2  Employees State Insurance Act
22) "wages" means all remuneration paid or payable in cash lo an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes [27] [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, [28] [paid at intervals not exceeding two months], but does not include-

From the above it is clear that the notice pay is paid to an employee for which he does not have to perform any duty. Considering the definition of Wage in RPF Act it is not a wage as it is not earned by the employee while on duty. EPF is not payable on this.

However in the ESI Act the definition is very wide and include all remuneration and in the amended act it includes compensation for lay off though it is not salary/wage under the ID Act. Therefore ESI contribution is payable. 

Dear Mr. Harbhajan,

you have explained vary nicely.

in case of esic i would request to give more details. 

Notice Pay is not any type of remuneration as wel not paid during employement.

i would request you to please reconsider, expecting your reply.

val_sunil@bsnl.in

Thanks Sunil for extencding the discussion.  This gives an opportunity to ponder over the issue again to clear your own doubts. 

As I said that the definition of Wages in ESI Act is very wide and the amendment in the definition had to be warranted when the compensation for lay off was not considered wages. I would like to refer to the SC in Harihar Plyfibres 1984 AIR (SC) 1680 wherein the court held that 'remuneration' under the first clause of the definition  has, to be under a contract of employment, express or implied but 'remuneration' under the third clause need not be under the contract of employment but may be any 'additional remuneration' outside the contract of
employment. 

My view are based upon these observations but going by the literal meaning of the notice period pay, it is a payment which is made to to the employee when  he opts to quit the employment and as per terms of the contract he has to serve further during the notice period but the employer does not want that he should come to the office during the period and relieves him by making apayment and as per terms of employment. 

I hope I have made myself clear.