How Should We Calculate Subsistence Allowance and Handle Deductions for a Suspended Employee?

Hi Everybody,

I wanted the experts' opinion in relation to a serious issue. For unavoidable reasons, we had to place one of our employees under suspension, and the inquiry committee has been set up to look into the charges. Pending the inquiry report submission, we need to pay a subsistence allowance to the suspended employee, and as per organizational policy, it is one-fourth of the pay. Now, my query is related to the calculation of the 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 and correct way, and what procedures are generally followed in companies regarding the aforementioned calculation?

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

3. If the subsistence allowance is calculated as one-fourth of the basic pay, then other allowances like DA, HRA, etc., will be computed based on one-fourth of the Basic or will remain the same as earlier? Also, in the case of one-fourth of basic, if the 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 the reduced basic? Will TDS be carried out in this case?

Looking forward to a prompt response.

Hi,

If your organization's policy is to pay 1/4th of the salary to a suspended employee, you have to pay 1/4th of his gross earnings until the charges are discharged. If the total earnings exceed the taxable exemption slab, TDS should be deducted on the excess income. If the earnings do not surpass the exemption limit of income, no TDS should be deducted. The PF should be calculated on 1/4th of the Basic + DA paid.

Mohan Rao
Manager HR

Dear Neha,

Subsistence allowance cannot be one-fourth; it is to be 50% of the total salary. If your policy states one-fourth, then your policy is against the Standing Orders Act. You can refer to Section 10A of the Standing Orders Act. There will not be any deduction of PF on subsistence allowance.

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 organization inserted in an employee's Standing Orders and certified by the Commissioner of Labour with the consent of the employees and the union, it can be operative. However, to my knowledge, no Commissioner of Labour will certify 1/4th salary as subsistence allowance.

Furthermore, I would like to highlight another point: as long as charges are levied and not proven, the employee is not a defaulter. They still remain a full-fledged employee without any work assigned and are not considered a defaulter unless the charges are concretely proven. Therefore, all statutory payments can be deducted against their 50% Basic and DA as usual.

Mohan Rao
Manager HR

Subsistence Allowance is an allowance paid or payable to an employee while he is on suspension pending inquiry. As stated by Mallik, the Standing Orders Act provides for a subsistence allowance. However, there are some state Acts like the Kerala Payment of Subsistence Allowance Act, which provides for the payment of subsistence wages. According to the Kerala Act, 50% of the Basic + DA is to be paid as a subsistence allowance for the first 90 days of suspension. If his suspension is not revoked within 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% of the basic salary, the DA will also be reduced proportionally. But during suspension, no other allowances will become due. The amount payable shall be considered as income as if earned for the purpose of Income Tax, and accordingly, TDS shall be deducted.

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

Regards,

Madhu.T.K

Malik ji and Madhu ji have provided the correct information, as usual, on the quantum and duration of subsistence allowance. I cannot thank them enough for their valuable inputs, which are very useful for all HR professionals.

I would like to add a few more points here:

1. As correctly pointed out, except for TDS (wherever applicable), no other statutory deductions are made, as it is not "salary," but subsistence "allowance" 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 every day.

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,

I 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 the future so that you do not suggest any erroneous conclusions, as it may land the other person in trouble. I hope you will not mind and accept my suggestions in the proper spirit.

Warm regards.

Hello Everybody!

Thanks for your valuable inputs. Can anybody please explain to me the process for issuing the show cause notice/taking disciplinary action against an employee? How can we suspend an employee? What procedure should be followed? Awaiting your responses.

Thanks,
Santosh

Hello everyone,

If a company does not have certified standing orders, then the subsistence allowance is equivalent to the gross monthly wages and nothing less. This has been my very recent experience.

As per the provisions of the Industrial Employment (Standing Orders) Act, 1946, under Section 10(A)(1):

Where any workman is suspended by the employer pending investigation or inquiry into complaints or charges of misconduct against him, the employer shall pay to such workman a subsistence allowance:
(a) at the rate of fifty percent 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 percent of such wages for the remaining period of suspension if the delay in the completion 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 establishment is covered under ESI, at the time the subsistence allowance payment is made.

If the company does not have its own standing orders, then the Model Standing Orders provided in the annexure of the Act are to be followed.

Very good information provided on subsistence allowance. Subsistence allowance is only a survival benefit, so unless and until the final decision comes, he should not be on roads. It is a principle of Natural Justice.

It is not considered as salary, so no allowances will be paid, and no PF & ESI will be deducted.

For the first 90 days, 50% of the salary will be paid. After 90 days, 90% of the salary will be paid, and after 180 days of no decision, 100% of the salary will be paid.

So, we can calculate the subsistence allowance as 50% of Basic + DA.

Procedure for disciplinary action:

1) Written complaint from the complainant.

2) On the basis of the written complaint, the 1st show cause notice is issued to the accused where an explanation is demanded within 3 days of receiving the show cause notice (Principle of Natural justice).

3) After reviewing the written complaint, if management finds the explanation satisfactory, a warning notice is given to not repeat the same in the future.

4) If management does not find the explanation satisfactory, then a charge sheet is issued to the accused where the day, date & time of the domestic inquiry is written.

5) Meanwhile, an enquiry officer and management representative are appointed.

6) The domestic enquiry continues, and the enquiry officer will present his report.

7) Based on the enquiry officer's report, a 2nd show cause notice is sent to the accused, stating that his charges are proved, and an explanation is demanded on why management should not terminate his services (Principle of Natural justice).

8) After receiving the explanation, the management decides whether to discharge the services, suspend, degrade, stop his increment, or take him back on services.

If there is any addition or edition in the above procedure, your comments are welcome.

If anyone wants any other information, they can call me on 9909001742.

Regards,

Abhijeet Sawant

Hi Everybody,

While going through the provisions of the 'Standing Orders Act' 1946, I came across the following information:

Industrial Employment (Standing Orders) Act, 1946

[Act No. 20 of 1946 As Amended by Acts Nos. 3 of 1951, 36 of 1956, 16 of 1961, 39 of 1963, 51 of 1970, and 18 of 1982]

[23rd April, 1946]

The Act requires employers in industrial establishments to formally define the conditions of employment under them.

Whereas it is expedient to require employers in industrial establishments to define with sufficient precision the conditions of employment under them and to make the said conditions known to workmen employed by them.

It is hereby enacted as follows:

1. Short title, extent, and application. -

(1) This act may be called the Industrial Employment (Standing Orders) Act, 1946.

(2) It extends to the whole of India.

(3) It applies to every industrial establishment wherein one hundred or more workmen are employed, or were employed on any day of the preceding twelve months.

It applies to railways, factories, mines, quarries, oil-fields, tramways, motor services, docks, plantations, workshops, civil construction, and maintenance works.

The Act has 15 sections and a schedule.

It applies to all skilled or unskilled, manual, supervisory, technical, clerical work.

Apprentices are also included.

Persons employed mainly in a managerial/administrative/supervisory capacity drawing wages exceeding Rs. 1600 are not covered.

With special reference to Section 10(A),

Section 10-A. Payment of subsistence allowance. - (1) Where any workman is suspended by the employer pending an investigation or inquiry into complaints or charges of misconduct against him, the employer shall pay to such workman a 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 completion of disciplinary proceedings against such workman is not directly attributable to the conduct of such workman.

Looking at this information, kindly guide me:

(i) Whether the 'Standing Orders Act', as it is, applicable to other establishments not mentioned specifically in the Act, like 'An Educational Group'?

(ii) Will the quantum of subsistence allowance be the same (50% of Basic+DA) for a suspended employee drawing a basic salary of Rs. 24,600, which is much more than Rs. 1600?

My query is: if statutory deductions like PF and ESIC are not required to be deducted or paid, then why should we use the term "Basic Salary" for the payment of subsistence allowance?

Thanks,

Dear Ms. Neha,

It is very necessary to make standing orders with all the points covered in it. Initially, when your establishment reaches 50 or more employees, you have to apply, i.e., draft standing orders with the concern of maximum employees or the union. If there is no difference, the Chief Inspector of Factories will certify it, i.e., called certified standing orders. So, if the difference continues until model standing orders will be applicable.

So, as per Ms. Neha's query: industrial & establishment where 50 or more employees, standing orders are mandatory & for educational institutes, it may be 100 or more. Please, senior, clarify in regard to wages because of the same confusion with gross wages or basic + DA.

Regards,
Ramnath

Subsistence allowance is to be paid based on the last drawn wages before the suspended month. It is 50% for the first 90 days, and if the delay is not due to the fault of the employee, then 75% for the next 90 days, and thereafter at 100% of the wages. However, if the employee refuses to participate in the disciplinary action or delays the same under one pretext or another, then only 50% subsistence allowance is payable. ESI contribution alone is payable on the subsistence allowance, as per case laws. In the event of dismissal as an outcome of the disciplinary action, then subsistence allowance is to be paid till the date of dismissal by MO or bank DD and to be issued/sent to the employee at least one day before the dismissal.

M. Venkatraghavan

If you do not want to use the term "basic salary," then ON WHAT BASIS SHOULD YOU PAY 50%? Basic pay is the "basis" of salary and wages; however, it is often fixed randomly - as seen from many posts asking "what should be the basic pay?", as companies/HR's find it easy and convenient to work on Gross Pay and CTC basis (which is not a good practice).

(i) In the absence of the Standing Order:
or where it is not applicable; there are other Disciplinary and Conduct rules; which generally have the same/similar provisions; as established laws prevail over situations unspecified/unwritten.
Therefore, ideally the same provisions should apply.

(ii) Quantum of Subsistence Allowance:
should remain the same (%age wise), irrespective of Basic Pay.

Warm regards.

Dear friends,

I have gone through the replies of seniors and juniors, and it was really good. At the same time, many versions have also been mixed up. The versions of 50%, 75%, and 100% are correct.

Regarding ESI/PF:
Since the employee is under suspension where his mistakes have not been proved, he continues to be a contributing member of ESI. This is because at present his suspension would have been in the benefit period, and if his ESI is not deducted now, it may affect the next corresponding benefit period. By then, he may rejoin when the suspension is revoked, and he will be deprived of ESI facilities.
As per the General PF Rules, the member under suspension cannot subscribe to the fund. In Form-3A (Member Annual contribution card), a column for "Non-contribution days" is provided with From - To period.
Please correct me if I am wrong.

Regards,
Chandru

According to the AP Shops & Establishment Act 1988, the suspended employee is entitled to receive 50% of wages for the first six months. During this six-month period, if the inquiry against them is not completed, the employee will be eligible for 75% of wages until the end of the second six-month period. After one year, if the management fails to prove the allegations, the suspended employee is eligible to receive full wages until the lapse is proven. This one-year period will be considered as on-duty.

Thanks Mr Chandrasekhar and Ramachndran,
The Supreme Court has held in the case of RD, ESIC Vs.M/s.Popular Automobiles etc.in its judgement dt. 29.9.97 in Civil appeal no.3850 of 1993 that ‘suspension/subsistence allowance is wage and contribution is payable under Sec.2(22) on the said amount'
Regards,
Madhu.T.K

Dear friends,

Hope the answer of Mr. Madhu has resolved the doubts. What remains is the doubt of Mr. Rudsan. Dear Rudsan, the following steps are to be followed while taking disciplinary action against an employee:

1. Preliminary enquiry
2. Show cause notice
3. Constituting disciplinary authority
4. Charge memo and statement of allegation
5. Domestic enquiry
6. Communicating enquiry report and proposed punishment with show cause notice thereof
7. Issuance of final order.

As each step requires an explanation, it is better to consult a practitioner of labour laws for details. Alternatively, you can ask for the same in this thread itself. The appointing authority is empowered to suspend an employee. Where the appointing authority is the forum for hearing an appeal, it should not act as the disciplinary authority.

With love

Dear All,

If an employee is suspended, they will be entitled to 50% of their gross salary as a subsistence allowance for the first 3 months. If the inquiry extends beyond 3 months, they will be entitled to 75% of their gross salary. Only ESI will be applicable to the suspension allowance, and PF is not applicable.

Thank you.
Shiv