Can Company Directors Be Treated as Employees and Receive Benefits Like PF?

Dear All,

My Managing Director recently called me and told me that all people in the company, including him and other directors, are to be taken on the payroll of the company. He also mentioned that he should be given PF, professional tax, and other benefits exactly in the same manner as a regular employee.

We are a Pvt. Ltd. Company.

Now, my question is: can a Director or Directors be treated as an employee of the company? Can we allow them to have Provident Fund and other benefits? Kindly provide a reference to the Act or judgment.

Regards,
Govind

Any director in the company receiving remuneration and perquisites would be termed as a whole-time director. The Managing Director is also a whole-time director. The terms of appointment of a whole-time director may contain benefits and facilities on par with other employees.

Suryanarayana SV
Practising Company Secretary
Hyderabad, India
[Suryanarayana S V](http://www.suryanarayana.com)

Yes, the PF can be deducted from the salary of a Director, but in the accounts book, you need to enter the salary of the director as Director's Remuneration, not as salary.

Vijay

Yes, I do agree with Mr. Vijay. In fact, the director is the first employee of the company.

Regards,
S. Vishwanath

I agree with Hyderabad, India, Suryanarayana S V's reply above but with the following qualifier:

The director of a private limited company owning a factory who has been appointed as its 'Occupier' under the Factories Act, 1948, cannot claim to be an 'employee'. He is treated as the 'employer', the person having ultimate control over the affairs of the factory.

Thank you very much for your prompt response. This information is helpful to me. Special thanks to Mr. Suryanarayana SV and Professor B J Bhadavle.

Regards,
Govind

Dear All,

Suppose a retail company has 33% of its revenue allocated towards employee (manpower) costs, i.e., salaries paid to employees, and these expenses are inevitable. How can HR help reduce this manpower cost without decreasing the employee strength?

The company is a small enterprise in the retail sector, with all its revenue coming from retail sales through its stores spread across India.

Dear Govind,

You should concentrate more on increasing the efficiency of the employees, rather than focusing too much on reducing costs. In the preview of your question, it's impossible for anyone in this forum to suggest ideas for cost reduction. It's you who have to analyze the costs incurred since the data, statistics, or processes are not available.

You can compare the costs incurred for manpower in the last two to three quarters. Then, the analysis has to be done by linking the same to efficiency and performance. There are numerous factors in HR. Without analyzing the scenario, if you directly focus on cost reduction, it might affect the motivational level of your employees.

Regards,
Sundar

Is the employer contribution to the Provident Fund through the Employees' Provident Fund Organisation (EPFO) tax-exempt? I am a little confused about it. Please guide.

Thank you.

Provident Fund Contribution and Tax Implications

Employer contribution toward PF is exempted up to 12% for all Recognised Provident Funds. However, if the employee withdraws the balance before 5 years of service, it will be taxable at the time of withdrawal.

Regards,
VENUGOPAL

Thank you very much for your response. Yes, I agree with you, but the Act further states that "20 or more employees under one roof." Here, the employees are divided in different states. Could you please guide me?

Regards,
Govind