Understanding Subsistence Allowance: What Happens When an Employee is Suspended?

Legal Tip of the Day

Once an employer suspends an employee, subsistence allowance will be payable. Subsistence allowance forms the terms of employment and closes as not contingent on actual work but during the pendency of an inquiry, even though the worker is not working, he receives the allowance. Subsistence allowance is, in fact, a nickname for "reduced wages or reduced salary."

Consequently, the subsistence allowance is part of wages under clause (vi) of Section 2 of the Payment of Wages Act. It does not amount to a deduction of wages; hence, the claim for a deduction of wages would not be maintainable under Section 15 of the Payment of Wages Act.

When an employee is suspended, his contract of service is not rescinded, and the relationship of employer and employee subsists. The suspension of an employee merely prohibits an employer from assigning any work to the employee during the disciplinary proceedings.

Regards,
Deepak Miglani
Advocate
President, Legal Point Foundation

For any queries:
deepakmiglani@hotmail.com
Phone No: 9958086337 (Delhi), 09215514435 (Haryana)

Sir,

What is the percentage of wages that has to be paid during the suspension period, and what about statutory deductions like ESI, EPF, and PT? Please suggest.

Dear Sir,

Can you please guide me on whether PF and ESIC should be deducted from the subsistence allowance paid to a suspended employee?

Regards,
Sunil Nipurte

Dear Mahesh,

We have to reduce wages to 50% during the first 90 days of suspension, 75% for the following 90 days, and full suspension thereafter. Please refer to The Industrial Employment (Standing Orders) Act, 1946.

Thanks,
Sunil Nipurte

It is not mandatory to deduct PF, but if the employee wants it deducted, then they may inform the employer in writing.