Dear Sir / Madam
On July 2016, the firm I am working for has taken PF registration and now all employees are covered under PF. For PF contribution purpose, we have made the salary split up for each employee (before it was just Basic + Sales commission). Here is the salary structure we have now:
****************************
1. Basic
2. DA
3. HRA
4. CCA
-----------------------------
Total 1 - Gross Salary
------------------------------
5. Other Allowances
6. Sales Commission
---------------------------------------------
Total 2 - Allowance + Commission
--------------------------------------------
************************************************** **
Monthly Salary of Employee = Total 1 + Total 2
************************************************** ***
This salary structure was arrived at with request from management to keep the Gross salary as low as possible, to reduce the burden of ESI and PF. So, what was done - was to keep the basic salary at a minimum with accordance to the minimum wages act applicable to us (in our case - Kerala Shops & Commercial Establishments Act) - and the balance amount which remains after the gross salary is booked as "Other Allowances".
Let me show an example of an employee in our firm - he is a marketing executive whose salary has been decided as ₹30,000/- per month + sales commission. His break up is as follows:
1. Basic - 9330
2. DA - 1300
3. HRA - 3500
4. CCA - 200
------------------------------
Gross Sal total - ₹14,330
---------------------------------
5. Other Allowance (total sal ₹30,000 - gross sal total ₹14,330) = ₹15,670
6 Sales Commission (varies with sales volume)
----------------------------------------------------------
Total salary = 14,330+15,670+sales commission
---------------------------------------------------------------
In this case, as per my understanding, ESI is applicable on the "other allowance" amount of ₹15,670 and the sales commission amount
But, in ESI wages document, it is mentioned that if some allowances are booked and paid quarterly, then it won't attract ESI. But the problem here is that the employees will not allow quarterly payment of the same as it is forming a significant part of their salary.
So, one of my co-workers has come up with an idea - to mark the "other allowance" portion as advance payment of salary for 2 months, and then book the full amount in the last month of the quarter and pay the balance. -
To make it more clear for the above example, for the sake of calculation, lets assume sales commission to be Rs. 1000
1st month payment = Gross salary 14,330 + Advance amount ₹16,670 (₹15,670 other allowance+ sales commission ₹1000) = Total ₹31,000
2nd month payment = Gross salary 14,330 + Advance amount ₹16,670 (₹15,670 other allowance + sales commission ₹1000) = Total ₹31,000
3rd month payment
------------------------------
1. Add: Gross salary ₹14,330
2. Add: quarterly payment of incentive + allowance - ₹50,010
{ [3 months x 15,670 = ₹47,010] + commission for 3 months [1000 x 3 = ₹3,000] }
3. Less: advance deduction for previous 2 months = (16,670 x 2) = ₹33,340
---------------------------------------------------------------------------------------------------------
Net payment: ₹ 31,000
-------------------------------------------------------------------------
So, in effect, employee does not notice any change, as payment amount for each month is same as before, but the booking is done quarterly and we can argue payment is done quarterly also, as for the first two months, employee is taking the amount as advance
Please give your valuable comments and suggestions for this method, and if we adopt this can the other allowance and commission amounts be exempted from ESI?
Also, any other suggestions by you for helping us claim exemption from ESI is greatly appreciated.
Thanks and Regards
On July 2016, the firm I am working for has taken PF registration and now all employees are covered under PF. For PF contribution purpose, we have made the salary split up for each employee (before it was just Basic + Sales commission). Here is the salary structure we have now:
****************************
1. Basic
2. DA
3. HRA
4. CCA
-----------------------------
Total 1 - Gross Salary
------------------------------
5. Other Allowances
6. Sales Commission
---------------------------------------------
Total 2 - Allowance + Commission
--------------------------------------------
************************************************** **
Monthly Salary of Employee = Total 1 + Total 2
************************************************** ***
This salary structure was arrived at with request from management to keep the Gross salary as low as possible, to reduce the burden of ESI and PF. So, what was done - was to keep the basic salary at a minimum with accordance to the minimum wages act applicable to us (in our case - Kerala Shops & Commercial Establishments Act) - and the balance amount which remains after the gross salary is booked as "Other Allowances".
Let me show an example of an employee in our firm - he is a marketing executive whose salary has been decided as ₹30,000/- per month + sales commission. His break up is as follows:
1. Basic - 9330
2. DA - 1300
3. HRA - 3500
4. CCA - 200
------------------------------
Gross Sal total - ₹14,330
---------------------------------
5. Other Allowance (total sal ₹30,000 - gross sal total ₹14,330) = ₹15,670
6 Sales Commission (varies with sales volume)
----------------------------------------------------------
Total salary = 14,330+15,670+sales commission
---------------------------------------------------------------
In this case, as per my understanding, ESI is applicable on the "other allowance" amount of ₹15,670 and the sales commission amount
But, in ESI wages document, it is mentioned that if some allowances are booked and paid quarterly, then it won't attract ESI. But the problem here is that the employees will not allow quarterly payment of the same as it is forming a significant part of their salary.
So, one of my co-workers has come up with an idea - to mark the "other allowance" portion as advance payment of salary for 2 months, and then book the full amount in the last month of the quarter and pay the balance. -
To make it more clear for the above example, for the sake of calculation, lets assume sales commission to be Rs. 1000
1st month payment = Gross salary 14,330 + Advance amount ₹16,670 (₹15,670 other allowance+ sales commission ₹1000) = Total ₹31,000
2nd month payment = Gross salary 14,330 + Advance amount ₹16,670 (₹15,670 other allowance + sales commission ₹1000) = Total ₹31,000
3rd month payment
------------------------------
1. Add: Gross salary ₹14,330
2. Add: quarterly payment of incentive + allowance - ₹50,010
{ [3 months x 15,670 = ₹47,010] + commission for 3 months [1000 x 3 = ₹3,000] }
3. Less: advance deduction for previous 2 months = (16,670 x 2) = ₹33,340
---------------------------------------------------------------------------------------------------------
Net payment: ₹ 31,000
-------------------------------------------------------------------------
So, in effect, employee does not notice any change, as payment amount for each month is same as before, but the booking is done quarterly and we can argue payment is done quarterly also, as for the first two months, employee is taking the amount as advance
Please give your valuable comments and suggestions for this method, and if we adopt this can the other allowance and commission amounts be exempted from ESI?
Also, any other suggestions by you for helping us claim exemption from ESI is greatly appreciated.
Thanks and Regards