Are PF and ESIC Deductions Necessary for Incentives Paid in July? Seeking Advice

Hello friends,

I need your guidance on whether we need to deduct PF & ESIC on the incentive. We are paying incentives for April, May & June in the month of July 10. Do we need to deduct PF/ESIC from it?

Regards,
Madhura

Dear,

If you are paying incentives every month, then you are required to pay ESI, not PF. However, if you are paying on a quarterly basis and not showing it as monthly, then you are not required to pay ESI and PF.

Dear Madhura,

Malik Sir is absolutely right. If you are paying the incentive monthly as an allowance, you need to pay ESI only, not PF. But if you are paying it at intervals exceeding two months, you are not required to deduct ESI/PF.

Regards,
Sanjay Gupta

Malik sir's advice is correct. If you are paying incentives monthly, then you need to pay ESI, not PF. However, you can pay it quarterly to avoid the deduction of ESIC. This incentive must genuinely be an incentive, and you have to prove it to the government when they inquire about the practices and procedures. In my company, we were paying incentives without a policy and procedure, and the PF officer threatened to file a case against us. Subsequently, we created a policy and procedure for the same and included it in our union agreement.

Hi,

If you are paying incentives or ex-gratia every month, then you have to pay ESI only, not PF. If you are paying incentives or ex-gratia quarterly, half-yearly, or yearly, there is no need to pay ESI.

Amit
SEI

Dear All,

I also agree if the incentive is paid monthly, then PF & ESIC should be deducted. If it is paid under the name of Variable and the amount varies sometimes, then is PF & ESIC applicable or not.

PF is calculated on Basic salary + DA. So incentive will not be deducted from it.

ESI is calculated on gross.

Incentive is a part of the gross salary if paid on a monthly basis and will attract ESI. Otherwise, not.

Dear Malik ji,

Can one pay a lump sum amount as an incentive instead of making OT payments to avoid contributing PF contributions? Because at times PF authorities object to making OT payments, stating it as an evasion of wages.

Regards,
H Singh

I agree with your point, but I have a doubt. If one person's gross income is 15,500 for the month of April, but in the next month, he is getting 14,500, how should we mention this in the ESI online system?

If a salesman is receiving a basic salary of 9600 per month, DA of 6820 per month, HRA of 6568 per month, incentives of 5200, and reimbursement of conveyance of 10511 per month, should we deduct TDS from his salary? Annually, he is receiving:

- Basic = 115200
- DA = 81840
- HRA = 78816
- Incentives = 62400
- Reimbursement of conveyance = 126132

Kindly help me, please.

Hi,

If a technician is receiving a salary of $14,000 and an incentive of $2,000 (which varies based on monthly performance), is the incentive applicable for PF (Provident Fund)?

No. The incentive is not applicable for PF as it is calculated on Basic+DA. But ESI is applicable on incentive as it is calculated on gross salary.

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If an employee's Gross Salary is ₹18,000, with a Basic of ₹12,400, plus HRA and other allowances of ₹5,600, and a Variable Pay ranging from ₹100 to ₹15,000 depending on performance and target achievements, and they receive an incentive of ₹8,000 in April 2024, how much should be deducted for PF and ESIC?

PF and ESIC Deductions

Should the PF deduction be ₹1,488 or should there be no PF deduction? Should we deduct ESIC at ₹135 or ₹195?

Which is the correct amount? Please provide your inputs on this matter.