kartiken Started The Discussion:
Kindly find the lik here atttached in regards to ESI/PF inclusion or exclusion in notice pay. The discussion here is seems in equilibrium.
my request is floated too specifying reasoning behind pf inclusion and exclusion ( where I am confused).
But at he same time this seems resloving to certain extent. This query is where will we place in account books the amount if it is not considered as salary...
looking foward to your noble and quick response please.
Please note that the amount of notice pay as per standing order or terms of appointment which is paid to an employee in lieu of termination of employment do not attract any deduction of Provident Fund or ESI. Because it is not actually earned by the employee during the period of his employment, it is well settled law as pronounced by various high courts. You can, if you wish, refer the court judgments reported in 1959 (2) LLJ 733(Bom). The law laid down by the court is still continuing and you need not to have any confusion in this regard.
In the books of accounts it, of course, will be shown under the head of salary and wages.
It is not compulsory that every amount under the head of wages and salary should attract PF/ESI contribution.
when Notice pay does not rank for P.F deduction, it goes without saying that it is not wage or salary and when it is not wage or salary, in my view , it cannot be shown under salry or wages head.Further the object of notice pay is to enable the employee to tide over a posiible finacial hardship caused by sudden unemployment and thus it is in the nature of subsitence allowance, required by the employer to pay to the employee to enable him to fend for himself till he finds another job but with a time cap of one month. The basis for deciding "one month wages" is a merely to work out a formula agreed up on by the employer and employee to quantify such subsistence allowance but does not render it on par with wages. Therefore, in my view, it may have to be shown under different head of income but not salary. It is better to consult a Chartered accountant in this regard.
HR & Labour Law advsior
Thanks from the bottom of my heart for noble advice.
Dear PK Jain Sir, I am not able to access court judgments reported in 1959 (2) LLJ 733(Bom). Would request if any link/attachment be forwarded in support of same to go through and study.
Dear Seniors, I am still thinking "in which head should i then ask accounts to post" such compensation referred notice pay in support of my explanation since ultimately it willl end on posting and reimbursement.
Notice pay is an amount of compensation, as already advised, which is paid in lieu of termination of the services but does not attract PF/ESI deduction in view of the definition of wages described in the PF/ESI Act. As such it can be posted in the account head of salary and wages without any if and but. Some companies are maintaining a separate head as “Notice Pay a/c” you can choose which ever suits to your management. In my company, which is employing more than thousands of employees we post the same in the wages and salary head. So for your request of sending copy of the citation to you, I will send it to you shortly after finding it out from old books.
Yes, it will attract income tax as per applicable under the Income Tax Act.
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