Calculation of subsistence allowance for an employee under suspension
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Calculation of subsistence allowance for an employee under suspension

joveneha Started The Discussion:

Hi Everybody,

I wanted the experts' opinion in relation to a serious issue. For unavoidable reasons, we had to place one of our employee, under suspension and the enquiry committee has been set up to look into the charges. Pending enquiry report submission, we need to pay subsistence allowance to the suspended employee and as per organization policy, it is one-fourth of the pay.
Now, my query is related to the calculation of subsistence allowance:

1. Whether the subsistence allowance is to be taken as one-fourth of the total payable salary or one-fourth of the basic pay? What is the legal & correct way and what procedures are followed generally in companies, with respect to the afore-said calculation?

2. Whether TDS will be carried out for such an employee ? What if the one-fourth of total payable salary falls short of min. requirement for tax deduction?

3. If subsistence allowance is calculated as one-fourth of the basic pay, then other allowances like DA, HRA etc will be computed on the basis of 1/4 of Basic or will remain the same as earlier?
Also, in case of one-fourth of basic, if reduced basic is less than Rs. 6500, then the deduction of pf will be 12 % of 6500 (in our organization, for employees drawing more than Rs 6500 basic, we have pf = 12% of 6500) or
the pf will be computed as 12% of reduced basic?
Again, will the TDS be carried out in this case?

Looking forward to prompt response.

krmrao - Member Since: Aug 2009
Hi

1. If your organisation policy is to pay 1/4th of the salary to a suspended employee, you got to pay 1/4th of his gross earnings up to the charges are discharged.
2. If the total earnings are more than the Taxable exemption slab, TDS to be deducted on the excess income.
3. If the earnings are not more than the exemption limit of Income, no TDS to be deducted.
4. The PF to be calculated on the 1/4 of the Basic + DA paid.

Mohan Rao
Manager HR

malikjs - Member Since: Nov 2007
dear neha
subsistence allowance can not be one fourth.it is to be 50% of total salary.if your policy says one forth than your policy is against the standing orders act .you can refer section 10 A of standing orders act.
there will not be any deduction of PF on subsistence allowance.

krmrao - Member Since: Aug 2009
Hi neha

As Mr. Malik has said, if an employee is under suspension, 50% of his gross salary is to be paid, this is also implemented by State and Central Governments in India, If there is a Policy in your organisation and inserted in a employees Standing orders and got certified by the Commissioner of Labour with the will of the employees and the union, it can be operative, but to my knowledge no commissioner of labour will certify to 1/4th salary s subsistence allowance.

Further I would like to enlighten one more point, as long as the charges are levied and not proved, the employee is not a defaulter, he still remain a full pledged employee with out any work allotted and stands no defaulter untill and unless the charges are proved concretely, hence all the statutory payments can be deducted against his 50% Basic and DA as usually.

Mohan Rao
Manager HR

Madhu.T.K - Member Since: Sep 2007
Subsistence Allowance is allowance paid or payable to an employee while he is on suspension pending enquiry. As stated by Mallik, Standing Orders Act provides for subsistence allowance. Still, there are some state Acts like that of Kerala Payment of Subsistence Allowance Act, which provides for payment of subsistence wages. According to Kerala Act, 50% of the Basic + DA is to be paid as subsistence allowance for the first 90 days of suspension, whereas if his suspension is not revoked in 90 days, then the subsistence allowance payable for the next 90 days will be 75% and beyond a period of 180 days he will be entitled to 100% salary.

If you take 50% basic salary, the DA will also be reduced proportionally. But during suspension, no other allowances will become due. The amount payable shall be taken as income as if earned for the purpose Income Tax and accordingly, TDS shall be deducted.

If my understanding is correct, subsistence allowance will not be taken for PF and ESI. Once the suspension is revoked and he is reinstated in service, he will be paid salary with retrospective effect and it is then only that EPF and ESI are deducted. The reason being, during suspension period he is not earning any salary but is given an amount just for his survival or subsistence.


Regards,

Madhu.T.K

Raj Kumar Hansdah - Member Since: Jun 2009
Malik ji and Madhu ji have given the correct information, as usual; on the quantum and duration of subsistence allowance. I can not thank them enough for their valuable inputs, which is very useful for all HR professional.

I would like to add a few more points here :
  1. As correctly pointed out, except TDS (wherever applicable) no other statutory deductions are made, as it is not "salary", but subsistence "allowance" and meant to keep the body and soul of the person together, i.e. for survival.
  2. The concerned employee has to come to a designated place and sign an attendance register, everyday.
  3. Every month, the concerned employee has to produce a self-certificate stating that he is not under employment anywhere else. Failure to submit such a certificate, or taking up any other employment during the suspension period may result in denial of subsistence allowance.
Dear Neha,
Hope, the above additional information shall be useful to you.

@ Mohan Rao,
Dear, while thanking you for your responses, I find that you have contradicted yourself twice; regarding the quantum of subsistence allowance and statutory deductions; correcting yourself only when Malik ji provided the correct information.
Kindly take care and verify your information in future, so that you do not suggest any erroneous conclusions, as it may land the other person in trouble. Hope you"ll not mind and accept my suggestions in proper spirit.

Warm regards.

rudsan - Member Since: Mar 2009
Hello Everybody !
Thanks for your valuable inputs. Can anybody please explain me the process for issuing the show cause notice / taking disciplinary action agaisnt an employee . How we can suspend an employee? What procedure to be followed?
Awaiting your responses.
Thanks
Santosh

joveneha - Member Since: Apr 2009
Thanks a ton to all seniors: Mallik Sir, Madhu Sir, Raj Sir and Mohan Rao Sir for their valuable and just-in-time suggestions !

Kalpana M Iyer - Member Since: Aug 2008
Hello everyone, if Company does not have certified Standing orders, then Subsistence allowance is equivalent to the gross monthly wages and nothing less. This has been my very recent experience.

p ramachandran - Member Since: Aug 2007
As per the provisions of the Industrial Employment(standing orders)Act,1946, Under section 10(A)(1)
Where any workmen is suspended by the employer pending investigation or inquiry into complaints or charges of misconduct against him, the employer shall pay to such workman subsistence allowance-

(a) at the rate of fifty per cent. of the wages which the workman was entitled' to immediately preceding the date of such suspension, for the first ninety days of suspension; and

(b) at the rate of seventy-five per cent. of such wages for the remaining period of suspension if the delay in the competition of disciplinary proceedings against such workman is not directly attributable to the conduct of such workman
Please note that the ESI deduction is to be made, in case your establishement is covered under ESI, at the time of the subsistence allowance payment is made.



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