Are Performance Incentives and Bonuses Included in Gross Salary? Seeking Guidance!

Hi, can someone guide me? We receive variable pay such as performance incentives, commissions, and bonuses. Will these be included in the gross salary?

Thank you

Hi, normally, variable pay or performance incentives are separate from the fixed salary and, therefore, do not form part of the gross salary.

However, for the purpose of income tax calculation, all the above payments are considered as earnings, and tax will be levied based on the applicable tax slab.

Thank you so much, sir, for your guidance. My current employer shows the incentives and performance bonus as a part of the total gross, even though they are calculated in income tax. If the employer shows these as part of the gross, it affects the basic and PF, and also changes. Couldn’t that be a major issue? Kindly guide.

Thank you.

The issue arises only when the employer adds performance allowance, commission, incentives, etc., as part of the gross salary for deciding whether they are paying the statutory minimum wages. For the purpose of PF contribution, these components of salary could be excluded. After all, when the employer can restrict payment of PF on a salary of Rs 15,000, what is the relevance of the gross salary being inflated with commission, incentives, etc.? But concerning employees covered by ESI, these elements will be treated as part of wages provided these components are paid every month.

Performance-based incentives

Performance-based incentives of a regular nature, such as production incentives and sales commissions, which are paid every month, should be treated as part of gross pay.