Salaries and Wages explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Two sub-heads that look interchangeable, divided by a question that decides where each cost falls: is the money going to the employee, or into a fund?
Who is an employee
As per Paragraph 7 of Ind AS 19, an employee may provide services to an entity on a full-time, part-time, permanent, casual or temporary basis. For the purpose of this Standard, employees include directors and other management personnel.
The definition is deliberately wide at both ends. A casual worker engaged for a week is an employee; so is a whole-time director. Neither can be moved outside employee benefits expense on the ground of their contractual form or their seniority.
Salaries and wages
The aggregate amounts paid / payable by the company for payment of salaries and wages are to be disclosed here. Expenses on account of bonus, leave encashment, compensation and other similar payments also need to be disclosed here.
The common thread is that each is an amount owed to the employee — bonus, leave encashment on exit, compensation for termination. Whether it is paid in the period or accrued does not matter; the head covers amounts paid or payable.
Gratuity is unmistakably an employee entitlement, and one might expect it beside leave encashment under salaries and wages. It does not go there: where a separate fund is maintained for gratuity payouts, contribution to Gratuity Fund should be disclosed under the sub-head "Contribution to provident and other funds".
The distinction is not about who ultimately benefits but about where the money goes in the period. A bonus is paid to the employee. A gratuity fund contribution is paid to a fund, which will pay the employee at some point in the future, possibly many years later.
Grouping all fund contributions together — provident fund, superannuation, ESI, labour welfare, gratuity — lets a reader see the total flowing out to external funds in the period, which is a different figure from current remuneration.
Note the caveat attached to the sub-head: it is framed for defined contribution plans, since the expense recognized for a defined benefit plan is not necessarily the amount of the contribution due for the period. A gratuity plan is usually a defined benefit plan, and the Ind AS 19 expense — current service cost, past service cost, and net interest — will not equal the cash contributed. The contribution is what is disclosed here; the actuarial mechanics are dealt with under Ind AS 19.
Contribution to provident and other funds
The aggregate amounts paid / payable by a company on account of contributions to provident fund and other funds like Superannuation fund, ESI, Labour Welfare Fund, etc., are to be disclosed here. And contributions for such funds for contract labour may also be separately disclosed here.
The contract labour point closes a gap. A contractor's workers are not the company's employees, but statutory fund contributions in respect of them are still a cost the company bears, and the head accommodates them with the option of separate disclosure.
What is not a contribution
Penalties and other similar amounts paid to the statutory authorities are not strictly in the nature of "contribution" and should not be disclosed here.
A penalty for late deposit of provident fund is paid to the same authority as the contribution itself, which is exactly why the exclusion is stated. But it is not a benefit accruing to any employee — it is a cost of non-compliance, and belongs in other expenses.
Share based payments
The third sub-head of employee benefits expense is share based payment to employees, and the amount of expense under this head should be determined in accordance with Ind AS 102. It is presented separately because the cost is non-cash and is measured by reference to grant date fair value rather than to any amount paid.
Common mistakes
- Disclosing gratuity fund contributions under salaries and wages.
- Including penalties paid to statutory authorities within fund contributions.
- Excluding directors' remuneration from employee benefits expense.
- Treating the defined benefit expense and the contribution paid as the same amount.