Employee allowances - compensation management - Manu Melwin Joy

Employee AllowancesCompensation Management

Prepared By

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Manu Melwin JoyAssistant Professor

Ilahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – [email protected]

Employee Allowances

• Allowance is a sum of

money paid regularly to

a person, typically to

meet specified needs or

expenses. Allowances

are generally calculated

on basic salary.

Employee Allowances

• Types of Allowances

– 1.Fully exempted allowances.

– 2. Partly exempted allowances.

– 3. Fully taxable allowances.

Dearness AllowancesCompensation Management

Dearness Allowances

• Dearness Allowance: This

allowance is given to

protect real income

against inflation. Generally,

dearness allowance (DA) is

paid as a percentage of

basic pay.

Dearness Allowances

• As of June 2012, the

Dearness Allowance is

calculated s a percentage of

an Indian citizen's basic

salary to mitigate the impact

of inflation on people

belonging to the low income

group,

Dearness Allowances

• The guidelines that govern

the DA vary according to

where one lives (for

example, whether rural or

urban) .

Dearness Allowances• The III Central Pay

Commission recommended payment of DA whenever the CPI rose by 8 points over the index of 200 (with base 1960 = 100). The extent of neutralization granted with effect from 1-1-1973 ranged from 100% to 35%.

Dearness Allowances• The IV Central Pay

Commission recommended the grant of DA on a 'percentage system' of the basic pay (1986).It also recommended payment of DA twice a year; 1 January and 1 July.

Dearness Allowances• The V Central Pay

Commission looked into the issue of differential neutralization and found it to be injustice to senior officers and recommended uniform neutralization of 100% to employees at all levels

Dearness Allowances

• The Commission had

suggested that dearness

allowance should be

converted into dearness pay

every time the cost of living

rises by 50% over the base

level.

Dearness Allowances

• The VI Central Pay

Commission recommended

revision of base year of the

Consumer Price Index (CPI)

as frequently as feasible.It

also changed base year for

DA calculation to 2001 (base

year 2001=100),

Dearness Allowances• Formula for calculating

Dearness Allowance for Central government employees after 1.1.2006 is :

• Dearness Allowance %= {(Average of AICPI(Base year 2001=100) for the past 12 months – 115.76)/115.76}*100

House Rent AllowanceCompensation Management

House Rent Allowance• House Rent Allowance

(HRA) is an allowance given by many Indian employers, including government employers, to salaried employees in India to help them meet the cost of rent of House occupied by them on lease or rental basis.

House Rent Allowance

• HRA is exempt from tax

under Section 10(13A) of

the Income Tax Act,

subject to certain

conditions.

House Rent Allowance• House Rent Allowance

forms part of taxable salary income of an individual and an employee may be eligible to receive it, if his employer chooses to offer the allowance.

House Rent Allowance• Thus a salaried employee

may be eligible for House Rent Allowance (HRA) irrespective of Whether he/she stays in a rented/ leased accommodation or resides in his/her own house.

House Rent Allowance• As stated earlier, House

Rent Allowance received by a salaried employee is exempt from tax under Section 10(13A) of the Income Tax Act, subject to the following conditions:

House Rent Allowance– House Rent Allowance

(HRA) is part of the salary package offered by the employer to the employee

– The employee receiving HRA stays in a leased/rented accommodation and pays rent for it.

– Rent paid by the salaried employee exceeds 10% of his/her salary.

House Rent Allowance• Rent paid by a salaried

employee to his/her parents, for occupying a house owned by them, is eligible for exemption under Indian Income Tax Act.

House Rent Allowance• However rent paid by a

salaried employee to his/her spouse, for occupying a house owned by the spouse, is not eligible for exemption under Indian Income Tax Act.

House Rent Allowance

• You must have valid

rental receipts, for

having paid the rent, in

order to claim tax

exemption on House

Rent Allowance (HRA).

Conveyance Allowance Compensation Management

Conveyance Allowance

• A conveyance allowance

refers to an amount of

money reimbursed to

someone for the

operation of a vehicle or

the riding of a vehicle.

Conveyance Allowance

• The allowance is typically

a designated amount or

percentage of total

transportation expenses

that is referenced in a

country's tax laws or

code.

Conveyance Allowance• Organizations and

private or public businesses may also offer a conveyance allowance in addition to reimbursing employees or members for transportation expenses.

City Compensatory Allowance Compensation Management

City Compensatory Allowance

• This allowance is paid to

employees who are posted

in big cities. The purpose is

to compensate the high cost

of living in cities like Delhi,

Mumbai etc.


• The CCA amount varies from

city & it is highest in

metropolitan cities. The

amount payable to the

employees depends upon

the grade pay of the

employees.


• It is not calculated on

the % of the basic salary.

It is common to a

particular class of the

employee for a

particular place.

Foreign Allowance Compensation Management

Foreign Allowance

• This allowance is paid by the

Government of India to its

citizen employees for being

posted outside the country

and it is not included in total

income. It is completely tax-

free U/S 10 (7).

Foreign Allowance

• Foreign Service Incentive

Allowances consist of two

tax-free allowances provided

as incentives to foreign

service.

Foreign Allowance

• The Foreign Service Premium is

provided as an incentive to

foreign service and as such

recognizes that there are

disutilities and disincentives,

some of which may be

financial, resulting from

service outside Country.

Foreign Allowance• The Post Specific Allowance

is a non-accountable travel allowance designed to assist employees in travelling from post and reflects 80% of return full (Y) economy air fare between the employee's post and the headquarters city.

Child Education Allowance Compensation Management

Child Education Allowance• It was only in the 6th CPC

that the CHILDREN’S EDUCATION ALLOWANCE & HOSTEL SUBSIDY was introduced to Central Government employees. Prior to this, the scheme was being granted in a simple form as TUITION FEES.

Child Education Allowance

• From Rs. 30 to 40 per

month, the scheme was

revamped much to the

excitement of the Central

Government employees, and

earned their appreciation.


• One could see that the

scheme, launched in the

nation’s interest and with

the intention of attaining

higher standards in the field

of education and literacy,

had succeeded.


• Under this scheme, Central

Government employees

were now eligible to refund

the educational expenses of

Rs. 1000 per month per

child, for two children,

adding up to Rs. 12,000 per

annum per child.


• By submitting original receipts

for the expenses incurred for

the education of their children

from Kindergarten, right up to

Class XII, the employee could

claim a maximum

reimbursement of Rs. 12,000

per year.

Child Education Allowance• As a result, Central

Government employees began sending their children to only the best schools. It wouldn't be an exaggeration to say that the scheme was a big boon for Central Government employees living in small and medium-sized towns and cities.

Overtime Allowance Compensation Management

Overtime Allowance

• Industrial employees are

entitled to additional

payment for work done

beyond the normal working

hours.

Overtime Allowance

• There are two sets of rules

applicable for overtime

payment viz.

• (i) Departmental Rules and

• (ii) The Factories Act.

Overtime Allowance

• For work beyond normal

working hours and upto 9

hrs. a day or beyond 44.75

hrs upto 48 hrs in a week,

overtime is paid under

departmental rules which is

known as DOT.

OVER TIME PAYMENTS UNDER DEPARTMENTAL RULES (DOT)

• For work done beyond 9 hrs.

a day or 48 hrs a week,

payment is admissible at

twice the rate of pay plus all

allowances under the

Factories Act (often loosely

termed as OT Bonus).

OVER TIME PAYMENTS UNDER DEPARTMENTAL RULES (DOT)

• In the case of Day Workers, the

overtime is paid at the rate of

Basic Pay + Dearness Allowances

+ City Compensatory Allowance +

Personal Pay + Special Pay

+Pension to the extent as

applicable, divided by 200 for

each hour of overtime worked.

OVER TIME PAYMENTS UNDER THE FACTORIES ACT, 1948

• For work done, beyond 9

hrs. a day or 48 hrs a week,

there are two sets of rules –

one for the Day Worker and

the other for the Piece

Worker.


• Day Worker: Hourly rate of

payment which are

applicable equally in the day

shift as well in the night shift

is calculated at the rate =

twice the pay &

allowances/200.


• Piece Worker: Hourly rate of

payment in the day shift is

calculated at the rate = twice

the pay & allowances/200. In

the night shift, the same

becomes = (twice the pay +

pay/4 +

allowances)/200.

Helper Allowance Compensation Management

Helper Allowance

• Any allowance, by whatever

name called, granted to

meet the expenditure

incurred on a helper where

such helper is engaged for

the performance of duties of

an office or employment of

profit.

Academic Allowance Compensation Management

Academic Allowance


name called, granted for

encouraging academic

research and training

pursuits in educational and

research institutions.

Academic Allowance


name called, granted for

encouraging academic

research and training

pursuits in educational and

research institutions.

Uniform Allowance Compensation Management

Uniform Allowance

• Uniforms that employees must

wear as a condition of

employment may be provided

tax-free as a working condition

fringe benefit so long as they

are not adaptable to street

wear or cannot be worn as

ordinary clothing.

Uniform Allowance• Your employee does not receive a

taxable benefit if either of the following conditions applies:– You supply your employee with

a distinctive uniform he or she has to wear while carrying out the employment duties.

– You provide your employee with special clothing (including safety footwear and safety glasses) designed to protect him or her from hazards associated with the employment.

Uniform Allowance• Employers may provide

employees with tax-free allowances to purchase uniforms if the apparel qualifies under the Internal Revenue Code (IRC) as a uniform and employees substantiate their expenses under the accountable plan rules of the IRC.

Travelling Allowance Compensation Management

Travelling Allowance

• A travel allowance is a

payment made to an

employee to cover expenses

when he or she travels for

work. This money might be

used to cover things like

accommodation, food, drink

and incidentals.

Travelling Allowance

• An allowance may be paid to

an employee before or after

they travel. If an allowance is

paid to an employee before

they travel, the employee

does not need to use all of

the allowance.

Travelling Allowance• A single flat rate of TA

incorporating accommodation, meals and incidental expenses will be paid to an employee directed to travel on official business by their employing Senator or Member, where the travel requires an overnight stay away from the employee’s work base.

Medical Allowance Compensation Management

Medical Allowance

• Medical allowance is a fixed

allowance paid every month

to the employees

irrespective of the fact

whether they submit the

supporting bills or not.

Medical Allowance

• Medical reimbursement is a

payment made to an

employee against the

medical bills produced by

him/her subject to his/her

entitlement.

Medical Allowance

• The maximum tax benefit

available is Rs. 15,000 per

annum. Under this head,

one may avail for reduction

in the taxable income for a

maximum of or up to Rs.

15,000 for medical expenses

during each financial year.

Medical Allowance• Reimbursement by an

employer of medical expenses incurred by an employee is generally tax-free. Where an employee is allowed to get reimbursement for the medical expenses incurred by him or his family members, the entire amount of reimbursement is tax-free and is not treated as a taxable perquisite.