Is It Legal to Hide Salary Deductions in Performance Incentives in India? Seeking Advice on Labor Law Compliance

Hi everybody,

I am working with a Healthcare KPO. The salary structure consists of two parts: fixed (fully documented and structured) and variable (incentives and deductions). While the incentive guidelines and parameters have been clearly laid out in the appointment letter, there is complete silence about deductions in the appointment letters. This information is only conveyed to new joiners orally.

While the salary slip consists of everything, it contains only one heading as "Performance Incentive." Where deductions are involved, they are not shown explicitly; instead, they are deducted from the incentive and shown as "performance incentive."

My question is: Is this going to hold in the court of labor law in India? Can this be considered as an unlawful deduction? Please advise.

This cannot be a law enforcement if your employer is deducting from your normal package, then you can go to law. If you are enjoying the incentive in a positive manner, you should also consider the negative aspects. If you are getting deducted, analyze and try to improve. The slab for incentives is kept only for generating good work, and if it is not found satisfactory, you have to accept and try to improve.

Clarification on Incentive and Legal Action

Can you please be more clear? If the incentive amount is negative, then maybe you can take the company to the labor court. If the total incentive amount is positive, then you cannot take the company to the labor court. That is, the total salary cannot be less than the fixed components, less standard deductions such as PF, ESIC, etc.

Dear Mr. John,

Whereas the company boasts of total transparency, it is shameful that the company must say this... "everything cannot be given in black and white... or else the employees may misuse it."

What the company is, in fact, doing is making fun of the faith that employees have in the company. Even the most sincere employees would, in the long run, tend to have negative thoughts and a sense of demotivation.

SKP

Dear Mr. Mirza,

I must be clearer. The incentive does not go completely negative. The fixed part remains intact. The calculation is as follows: Total salary = Fixed components [less standard deductions such as PF, ESIC, etc.] + Performance Incentive. However, the computation of Performance Incentive is not documented. It is only communicated orally to employees, and the calculation is as follows: Performance Incentive = Incentive earned - deductions. The resulting Performance Incentive is then added to the payslip.

Thank you,
SKP

Dear SKP,

As the performance incentive remains nil or positive, there is no legal recourse for the same. The transparency in the incentive paid is the decision of the company. However, it is surprising that the incentive is usually paid to ensure higher productivity. If the incentive policy and calculation are not transparent, the entire purpose of having an incentive is defeated. At the same time, it is not possible to give complete details in the salary slip as the number of headings in the salary slip would be limited.

In our organization, we have a separate incentive slip that shows the total productivity of the employee and the calculation of the incentive for the given period (we give incentives on a quarterly basis). The final total of these incentive slips is then added to the salary slip under the performance bonus heading. Transparency in incentive calculation and payment is essential if the organization wants to ensure that the productivity of employees keeps on improving.