Transitioning from Salary to Commission: How to Handle Pay Adjustments and Compliance?

Dear all,

We have a manufacturing company based in Uttar Pradesh. Last month, we signed an agreement between the employer and our marketing staff as follows:

For the first two months of each quarter, a lump sum of Rs 25,000 shall be paid after each month. After the completion of the third month, the total commission shall be calculated for all three months, and the balance amount shall be paid (this amount can be less or more than Rs. 25,000 depending on the actual commission). If there is any shortfall, it can be recovered from the staff. This way, every three months, the accounts shall be settled to date.

Query Regarding Salary and Commission Transition

My query is, we are already paying a salary of Rs. 30,000 per month. How can we show their salary as less in the salary register, and what do we need to transfer as per the agreement, the lump sum of Rs. 25,000 (meaning less than the existing salary)?

Please guide me if this is acceptable or not. If acceptable, what is the procedure for transitioning from salary to commission-based pay?

How can I manage this situation?

Your opinion is highly appreciated.

Thanks,

Dinesh
[Phone Number Removed For Privacy Reasons]

You may show these entries as remuneration instead of salary. In the agreement, it can be stated as performance-linked salary.

Regards,
Manoj Tiwari
Advocate
[Email Removed For Privacy Reasons]

If you are paying a salary, you cannot stop it and reduce it. In addition to the salary, if you are paying incentives or commissions in advance, then you can adjust or recover it later.

The best way to manage this issue is to break that lump-sum amount into two parts (30% + 70%). In the first part, you should show it as Basic Salary + DA and mention it in the wages register. For the second, larger part of the same, you need to show it as a performance-based incentive or performance bonus.

At the end of the third month of every quarter, you can easily adjust any shortfall or other discrepancies from this same amount.

Thank you.

Regards

Query on Salary Management and Commission Recovery

I have a query regarding salary management. If a person is already receiving Rs. 30,000 for his home, how can we show his salary as Rs. 25,000 in the wage register?

Furthermore, if after 3 months it is found that he has not achieved his target and the commission calculated is less than Rs. 25,000, how do we transfer the balance to his account, and how can we recover it from him?

Kind regards,
Dinesh
[Phone Number Removed For Privacy Reasons]

Well, after perusing your query, I counsel two best possible ways to take care of your issues:

First Way

First and foremost, you have to create a clean salary structure in which their salary would be ₹9,000 (Basic + DA) [If I consider their reimbursement ₹30,000/month]. It must be mentioned in the wages register along with all the mandatory government compliance (PF, ESIC, etc.). Now, the remaining amount of ₹21,000 is considered as Performance Based Incentive (P.B.I.).

In your next step, you have to put on hold their 2 months’ P.B.I. and at the end of the third month, you will have to release the entire three months' PBI along with this month's salary after the computation of budget achievement. (You can also deduct the compliance expenditures from this PBI amount too.)

Second Way

Please review their budget achievement on a month-on-month basis. For this same working, you have to give them every month’s robust sales closing date, such as the 25th, 26th, or 27th. After this closing date, please review their % achievement and then release their P.B.I. along with their salary.