Are Performance-Based Payments Subject to PF and ESI? Understanding Employer-Employee Dynamics

We are an establishment covered under PF, ESI, and other labor laws, deducting PF/ESI for all employees. Now, if we hire approximately 10 people to sell our financial products and both parties agree that we will pay them a fixed amount based on the sales they generate. In other words, there is no pre-fixed amount; the payment is entirely performance-based.

Clarification on PF and ESI Provisions

Please clarify if the payments made in this scenario are subject to the provisions of PF and ESI.

Employer-Employee Relationship

Also, does an employer-employee relationship exist in this case? If not, what is the nature of the payments made?

1. Sir, as per the ESI Act of 1948 and the rules/regulations framed thereunder, payments such as incentives or performance-based on sales are considered wages, and contributions are required to be paid on such wages.

2. It is irrelevant whether the incentive or sales incentive amount is pre-fixed or not. The only relevant factor is that these payments are related to or associated with the factory/unit to which the said Act applies.

Sir,

If only ESI is applicable, what about the PF contributions? Is it possible that we pay him the amount as a "commission"? In that case, does the employer-employee relationship exist, or can we say that they are working as our agents on a commission basis?

Thanks,