Is Incentive a part of Gross Salary? If "YES" then Why?

Hi,
Ours is an IT company...we have Quarterly appraisals wherein we do salary increments every alternative quarter and give out incentives (on gross salary) on the rest two alternative quarters.
As these incentives are paid based on the performance of the review period....the % of incentive is fixed on various categories (assessed as per performance) bt the amount of inccentive is not fixed.
So, how can these be included in the Gross salary figure or the CTC figure of an employee, while giving offer / apptt letter or while calculating gross salarry of existing employee...????
Pls suggest......

Hi,
Pls note that CTC is the cost which company incur on an employee (does not include hiring cost, siting cost, training cost or any other cost which is not paid to the employee as these are counted under different heads). Hence any single amount which is to be paid to the employee contributes to CTC. THough incentives are not fixed, but there certainly is a limit to it which you can not cross.
While making an offer, we show what would be maximum incentive paid or % of incentive. Pls remember what does employer wants to know is the CTC, not gross salary because in any case he has to pay that amount to the employee.
Regards

Hi folks,
Unfortunately I do not have the ESI book as I am abroad, but do look up the meaning of wages - it includes bonus and incentives. The ESI rules apply here too.
Incentives fluctuate based on the policy of the company. An average expected incentive can always be arrived at, in fact while formulating the incentive policy this aspect is taken into consideration. For example, we expect an employee to take home an incentive of say 4000 INR. Based on this parameters and conditions are applied - in other words reverse engineering to match an average of INR 4000. If the performance is better, then the incentive becomes higher. A good scheme will permit very high incentives as the performance improves. Having arrived at the average figure, the rest of the salary can be worked out.
So, looking at the picture from this angle, would you not agree that incentives are part of the salary?
Best regards
Ajay

An annual performance linked incentive where there is a cap on the payout is considered as a part of gross salary. This is because the limit that can be paid out is quantified at the beginning of the year and can be computed as part of gross salary/CTC.
There are also other incentives which would be on monthly basis, product specific, period specific or ones that include paid vacations, foreign travel, etc which are not part of CTC/gross salary as these are variables and would be announced from time to time depending on the organisation's short term objectives.
Regds,
Inderpal Singh

Hi,
Ideally incentive is not part of the gross salary and is given to an employee on performance basis, which is again taxable.
But some companies do mention that as one of the components of the salary stucture. They usually mention the maximum amount that can be given as incentives. The actual amount is again Performance based.
Sonal

Dear Soma,
Incentives are basically based on performance of your job, because it affects on the profits of organisation. So all types of Sectors like, Telecom, Pharma, IT, FMCG etc. developes different kinds of incentives for different targets achieved by the employees.
Finally while calculating the Gross Income annually it is also termed as income and taxable under Income Tax Act.
With Cheers,
Om Prakash

Yes, Incentive is part of CTC of an Individual. Many of the organizations it is known as PLI - Productivity Link Incentive in India and also known as Goals/Gain Sharing in US based companies.
Regards,
Ashwani Singhvi
Delhi NCR

Hi,
We need to first note the nature of Incentive. If the incentives are fixed and part of the contract between employer and employee then it should be included in Gross.
In case the Incentives is variable, it advisable not to include in CTC. If the Incentives are paid on monthly basis, it should be included for ESI deduction (if the gross less than 10K), in case the incentives are paid more than 2months interval, then it will not come under the purview of ESI deductions.
Rgds,
Suresh Ramalingam
Consultant - Compliance

incentives are not a part of gross
based up on gross the amount of incentives are decided for an employee
t

Incentive is a part of salary treated as variable pay. If it is payed as reward then it will be no more as a part of the salary.