Is PF & ESI Deduction Necessary for Employee-Hired Driver's Salary? Seeking Clarity

Hi all,

I would need your help in clarifying a small doubt here. We are in the process of incorporating Vehicle Maintenance Allowance to some of our senior employees as part of their CTC. Under this allowance, payments can be made under the following categories:

1. Petrol
2. Car Maintenance
3. Driver's salary up to Rs. 6000 per month

Now, I would like to know if it is mandatory for us as an organization to deduct PF & ESI from the driver's salary amount to be paid to the employee, particularly when the driver is not hired by the organization but by the employee himself.

I would really appreciate it if you could help me sort this out and provide references to certain PF acts which require or do not require us to deduct PF & ESI in this scenario.

Thanks,
Amit

Hi Amit,

In my opinion, you need not deduct PF or ESI from the amount you are paying to your employee since it's the employee who is engaging the driver in his personal capacity but not the company. However, you can advise your employee to insure the driver for a decent amount under a personal accident policy apart from the comprehensive vehicle coverage.

Sincerely,
Pip

Dear Amit
In some of the factories/establishments the officers employed as employees are being paid drivers' allowance per month. This allowance is being paid to enable the officers to appoint a driver at their own level and such drivers employed are not being paid salary directly by the factories/establishments. Where such allowance is being paid to the employees and the drivers are not engaged by the employees, in such event the allowance paid as such will be considered as wage under Section 2(22) of the ESI Act and contribution will be chargeable provided the employee is coverable under the Scheme..
However, where the services of the drivers are being utilised, in such event the drivers so engaged will be covered as employee and contribution will be payable on the amount paid to the drivers as salary and booked in the ledgers of the employer under the heading ‘Drivers' Allowance'.
For any quary regarding ESIC Please use link: http://esic.nic.in <link updated to site home>
Vikas

Dear Amit,

Driver Allowance is itself taxable at the hands of the employee. A driver appointed by a senior employee of the company, as per the breakup of his CTC and claimed as a reimbursement, does not attract ESI or PF as per the coverage definition of these two enactments. However, the senior employee has to furnish proof to HR/Accounts of his having paid the driver for the 'driving' services rendered via a cash/cheque receipt.

Perk values are these days taxable as FBT and payable by the company if provided by the company at 6%.

Regards,
Rahul Kumar

Dear Amit,

In the case of BASF India Ltd v/s M. Gurusamy, RPFC (2004 I CLR 995 BOM-DB), it has been held that drivers in the service of Managers are, in fact, employees of the Company.

I do not have the entire citation of the case, but you can find it from your Legal Practitioners.

Trust this helps you to make an appropriate decision.

Regards,

HNP

Hi All,

Would need your help in clarifying a small doubt here.

We are in the process of incorporating Vehicle Maintenance Allowance for some of our senior employees as part of their CTC. Under this allowance, payments can be made under the following categories:

1. Petrol
2. Car Maintenance
3. Driver's salary up to Rs. 6000 per month

Now, I would like to know if it is mandatory for us as an organization to deduct PF & ESI from the Driver's Salary amount to be paid to the employee, particularly when the driver is not hired by the organization but by the employee himself.

Would really appreciate it if you could help me sort this out with reference to certain PF acts that require or do not require us to deduct PF & ESI in this scenario.

Thanks,

Amit