Q: I have a question for Mufti Saheb regarding a business contract for an employee.
I am an optometrist and have my own optometry practice. It is the main source of my income to run my home. I am hiring another optometrist to run the business so that I can increase my studies.
The going rate for an optometrist is around R25 000 a month in KZN.
I have offered this person a salary of R15 000 with the incentive of earning 50% of the profits from the business every month.
In the expenses of the business I have stipulated R25 000 as a salary for myself to run my expenses. I will still assist in the decision making and management of the practice. As the sole owner of the business. Is it permissible for me to take this R25 000 salary as part of the business expenses not to be included in the profit.
The expenses are all shared with the optometrist I wish to hire so that there is full transparency.
A: In Shariah, for an employment contract to be valid, it is necessary that the salary of the employee be specified from the beginning. If the salary is not specified, it will not be permissible.
After viewing the situation in question, we see that the salary of the employee is not specified. Hence, this contract is not valid in Shariah.
The reason for the salary being unspecified is that the fifty percent of the profits which you have agreed to give him is also regarded as being part of his salary (as you have told him that you are giving it to him to compensate him for the shortfall in his salary), and this amount is not known, as the 50% will fluctuate according to the business.
Furthermore, another problem in this contract is the condition that you will only give him 50% of the profits after you draw your R25 000 salary. Suppose the business only makes R25 000 in any specific month, or the business makes less profit than R25 000, then in that specific month, he will not receive any amount of the 50% of the profits which you agreed to give him as part of his salary. Therefore, this contract is not permissible and not valid in Shariah.
A permissible alternative in such a situation is that you give the person a higher salary e.g. R20 000 and you tell him that this is your entire salary. However, together with this, you give him an incentive to earn bonuses.
For example, you tell him that if he reaches a certain target in the business for the month (e.g. R50 000), then you will give him R2000 (or more or less) as a bonus or you tell him that if he reaches a certain target eg R 50 000, then you will give him 5 percent of the profits ). Hence, in this case, since this is a pure bonus which he will have to work for, and it is not part of his salary, it will be permissible.
And Allah Ta'ala (الله تعالى) knows best.
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