Whether Gift Vouchers or Employee Reward Vouchers Form Part of Wages
This article examines whether gift vouchers, incentive rewards, attendance bonuses, and similar employee benefits form part of “wages” under labour legislations such as the Code on Wages and the Employees’ State Insurance Act, 1948 (“ESI Act”).
The judicial decisions discussed below primarily examine whether such payments arise from contractual obligations, settlements, incentive schemes, or are merely voluntary gestures of goodwill by the employer.
Position Under the Code on Wages
Section titled “Position Under the Code on Wages”The definition of “wages” under Section 2(y) of the Code on Wages contains an Explanation which provides that remuneration in kind, to the extent it does not exceed 15% of all wages, shall be deemed to form part of wages.
An interpretation of the above provision implies that the original intention was that remuneration in kind would ordinarily not form part of wages, except to the extent specifically included by the statute.
1. Management of Kuttukkaran Engine Rebuilders vs. Employees’ State Insurance Corporation
Section titled “1. Management of Kuttukkaran Engine Rebuilders vs. Employees’ State Insurance Corporation”Citation: MANU/KE/0164/1997
Decision Date: 08.09.1997
The appellant was engaged in the business of engine rebuilding and re-conditioning.
The appellant used to make payment of equal amounts to employees as presentation or gift incentives whenever employees achieved monthly targets fixed by the employer. These payments were voluntary payments made on increase in monthly turnover and were not based on any settlement or contract of service entered into between the employer and employees.
The Kerala High Court held that:
even if additional remuneration is paid by the employer to the employee at the will of the employer without any agreement or contractual obligation, styled as gift or inam at intervals not exceeding two months, it will partake of the character of wages under Section 2(22) of the Employees’ State Insurance Act.
However, the Court also observed that where the payment is made merely as a gesture of goodwill by the employer, it would not fall within the ambit of wages.
2. Braithwaite & Co. (India) Ltd. v. ESI Corpn.
Section titled “2. Braithwaite & Co. (India) Ltd. v. ESI Corpn.”Citation: 1967 SCC OnLine SC 320
The issue before the Supreme Court was whether inam paid under an incentive scheme formed part of “wages” under Section 2(22) of the ESI Act.
The Supreme Court held that the definition of wages did not include incentive rewards.
While considering payment of incentive reward, the Court observed that a legal fiction adopted in law operates only for a limited and definite purpose. Therefore, remuneration payable under a scheme cannot automatically be treated as wages merely because the employee fulfilled conditions for earning the reward.
The Court held:
What is required by the definition is that the terms of the contract of employment must actually be fulfilled.
The Supreme Court further observed that mere acceptance by the employee of a reward for good work offered by the employer after satisfying prescribed conditions would not make such payment part of the contract of employment.
Accordingly, incentive rewards under such schemes were held not to form part of wages.
3. Wellman (India) Pvt. Ltd. vs. Employees’ State Insurance Corporation
Section titled “3. Wellman (India) Pvt. Ltd. vs. Employees’ State Insurance Corporation”Citation: MANU/SC/0224/1994 : 1993 INSC 360
Decision Date: 03.11.1993
In this case, attendance bonus payable to employees arose under the terms of a settlement which had become part of the contract of employment.
The Supreme Court held that since the attendance bonus formed part of the contractual terms governing employment, it would fall within the definition of “wages” under Section 2(22) of the ESI Act.
The Court observed that Section 2(22) covers:
all remuneration paid or payable in cash to an employee if the terms of contract of employment, express or implied, were fulfilled.
Accordingly, attendance bonus payable under a settlement forming part of employment conditions constituted wages under the Act.
Key Principles Emerging From the Cases
Section titled “Key Principles Emerging From the Cases”The above decisions indicate the following principles:
- Payments arising from contractual obligations or settlements forming part of employment conditions are more likely to be treated as wages.
- Incentive rewards or gifts voluntarily paid by employers may not form part of wages if they are merely gestures of goodwill.
- However, recurring payments made at regular intervals may acquire the character of wages under the ESI Act.
- Courts distinguish between voluntary incentives and payments enforceable under the contract of employment.
- Remuneration in kind is ordinarily not intended to form part of wages except to the extent specifically recognised under statutory provisions.
Conclusion
Section titled “Conclusion”The determination of whether gift vouchers, employee rewards, incentive payments, or bonuses form part of wages depends primarily upon the nature of the payment and its connection with the contract of employment.
Where payments arise from settlements, contractual obligations, or regular remuneration structures, courts have generally treated them as wages. On the other hand, purely voluntary rewards, goodwill gestures, or incentive-based payments without contractual enforceability may fall outside the scope of wages depending upon the facts and statutory framework involved.