Are Drivers Paid in Cash Eligible for PF and ESIC When Added to Payroll? Seeking Advice

Dear Seniors,

Please help me out. I am aware that an employer's driver's salary is exempted from tax. But I want to know whether the driver is eligible for PF/ESIC, as currently, we are paying his salary in cash and now we want to include it in the payroll.

Please suggest.

Meenakshi

I think the employer you mentioned may be a Managing Director, an Executive Director, or hold a designated office similar to these. In that case, what you are paying him for his driver's salary is an allowance by virtue of holding such an office and therefore exempt from tax. He may actually be paying more than this allowance, relieving the Company from additional expenses incurred towards employing a driver exclusively for this purpose. Consequently, no employment relationship, whether direct or indirect, is created between the Company and the driver employed by the individual at his own discretion. Thus, the driver's employment becomes a personal service and not an industrial employment, exempt from the purview of any Labour Laws such as the EPF Act or ESI Act.

Please let me know if you need further clarification.

Thank you.

Driver Benefits on Payroll

Mr. Umakanthan has already expressed this nicely. When you put the Director's driver on the payroll, he will receive benefits like any other employee. This means he becomes eligible not only for PF/ESI but also for other benefits like bonuses and overtime, similar to other employees. In many companies, particularly MNCs, drivers earn comparatively higher salaries due to overtime claims, as the bosses' working hours often end late in the evening, requiring the driver to be available until the boss reaches home. Similarly, you will need to make provisions for their gratuity.

Your company wants to put drivers on the payroll, which is a positive development. This change may lead to a better lifestyle for the drivers' family members due to the enhanced benefits offered directly by the company. The company may be considering this as part of the good service provided by the individual, but HR must be aware of the costs involved beyond the salary being paid.

Thanks & regards,

Driver Benefits and Compliance in Indian Operations

We provide drivers for General Managers and above in our Indian operations. All these drivers are on company rolls and are part of the company structure. All statutory compliances are done, and they are provided with all benefits, including PF, ESI, Gratuity, and Superannuation.

They are also entitled to all benefits applicable to their grade. Their retirement age is as per company policy. Their working hours are governed by local laws, including spread-over time. Those who work extra hours beyond the spread-over time are also provided with overtime.

Regards

Thank you very much for your response. As rightly said by Mr. Umakanthan, the driver mentioned by me is for MD and senior personnel. I also want to understand, if I take drivers on payroll, can we take the benefit of tax exemption? Is it possible? If I take them on payroll, whether their CTC can be considered as MD's allowance.

No, Ms. Meenakshi, when such personal car drivers are taken onto the rolls of the company, they become regular employees of the company and are entitled to all employment benefits. Therefore, their entire CTC would fall under the head of salaries of company employees in its P&L A/c. As a result of this new measure, those top brass individuals for whose services these drivers are utilized would no longer be entitled to such an allowance or any tax rebate in this regard.

Director's Remuneration and Employee Benefits

Since a workman engaged in regular duties and receiving wages, such as an allowance or reimbursement from the company, is key to the association, it is important to understand the implications. If he performs even 1% of his duties for official purposes, whether employed directly by the company or by a director, the remuneration of directors shall be subject to Section 197 of the Companies Act, 2013. The company's Articles of Association (AOA) contain clauses that govern this. Company directors can draw remuneration authorized by the articles. However, no director can draw unauthorized remuneration in the form of car or driver's allowances.

According to the Income Tax Act of 1961, if a car is owned by a director, the company can avail of deductions for fuel, maintenance, and the driver's salary incurred for official purposes. In this scenario, a workman engaged in regular duties cannot be treated as a director's perquisite if the company pays his salary as an allowance or reimbursement, regardless of the name. He shall not be deprived of statutory benefits like EPF, ESI, Bonus, etc., even if he performs 1% of his duties for official purposes.

Thanks & Regards,

V. SHAKYA

HR & Labour Law