Are Sales Incentives Really Part of CTC? Seeking Clarity from HR Experts

Dear all learned HR professionals,

I just want to collect information from you regarding incentives and CTC. Are sales/service incentives or commissions due to the employee considered part of CTC? If an incentive/commission is included in CTC, then it's acceptable. However, if it's not part of CTC, could you please provide clarification on why? I would greatly appreciate any clarification you can offer.

Thank you.

Biswajit Pani
E-mail: bjpani@gmail.com

Usually, sales/service incentives are a variable component in the remuneration of an employee, especially in the Sales/Service Department of a company. It depends on the volume of sales made by the employee.

You can divide incentives into three parts for different types of employees:

1. Fully Variable: Sales and Service Employees can be given this type of incentive, fully dependent on performance. This is similar to the commission given to insurance agents.

2. Semi-variable Incentive: For example, Rs. 5000.00 per month in addition to Rs. 250.00 per machine (or slab-wise, as the company can set an incentive policy). Usually, this type of incentive is followed in trading organizations.

3. Fixed Incentive: This can be part of CTC (similar to statutory bonus) and usually given to Admin/Accounts Staff.

Apart from these three incentives, the company can declare special incentives based on the performance of the employee or the turnover achieved by the company or the net profit earned by the company.

From a tax point of view, it does not make any difference for an employee whether it is part of CTC or given in addition to CTC as per their appointment terms, as it will be taxable as Salary only.

Hope this is clear.

Regards,

Sukhvinder S. Bhatia