Do HRA and Medical Allowances Change with Unpaid Leave? Seeking HR Insights

Dear HRs, kindly let me know if HRA and medical allowances change if leaves are without pay in salary or if only basic pay should change. Awaiting replies. Thanks a ton in advance.

Regards,
Anuja

Hi Anuja, there needs to be clarity in your question. I think you are asking, when a person goes on leave without pay, do we need to deduct salary only in basic or in other allowances as well, like HRA and Medical, right?

Understanding Salary Deductions During Leave Without Pay

Whenever a salary structure is designed, an employer splits the same into different components like Basic, DA, HRA, conveyance, special allowance, etc., according to the style he adopts. Whatever nomenclature you use, all are part of the salary, do you agree? Therefore, when he goes on leave without pay, the whole salary needs to be taken into account.

Secondly, if you choose to deduct only the basic salary and pay HRA and other components in full, there may be chances of a sort of complacency in the minds of employees that he loses salary only in Basic; so he may not take it seriously after all, it's only a small amount he loses. This might lead to more absenteeism.

Medical Benefits: Allowance vs. Reimbursement

Regarding medical benefits, some companies pay it as an "Allowance," and others pay it as "reimbursement." As long as you pay it as monthly allowances, it forms part of the salary and deserves to be deducted when he goes on leave without pay.

However, when you treat it as reimbursement, he can also submit medical bills for the expenses incurred for his dependents. Hence, irrespective of his leave without pay, etc., you need to pay him as per his eligibility. The Income Tax Act also permits medical reimbursement to the tune of Rs. 15,000 per annum as exempted. (Remember, it must be on production of bills)

Hope this makes sense.

Regards,
Balaji

Dear Balaji, you may like to review your reply, as there seems to be some contradiction in that.

For example, the facility of a medical allowance is granted to the employee to compensate for the expenses incurred by him/her on his treatment or that of his family members. Your contention is that in the case of leave without pay, he/she would lose the medical allowance as well. Suppose the employee fell ill and is under treatment for a long time, and for that reason only he/she is compelled to remain on leave without pay, with no other kind of leave at his/her credit, would the management be right to deny medical facility to its employee if the company does not have the policy of medical reimbursement?

Similarly, in the same case of his/her long illness and leave without pay as above, would he/she lose the benefit of House Rent Allowance (HRA) as well, while incurring expenses on rent for his accommodation?

You, as well as other seniors, need to think very seriously about these points before making any final opinion.

In my view, until the HRA and Medical Allowance are calculated and expressed specifically in terms of a certain fixed percentage of the basic salary, the management would not enjoy the right to deny these facilities to the employee, particularly for medical treatment.

So, I am of the opinion, if medical and HRA are treated as allowances and allowed as a fixed amount (not in terms of a percentage of the basic salary), they do not have any relation with the basic salary and cannot be affected by the kind of leave or the amount of salary in lieu thereof to the employee. However, for HRA purposes, the employer is free to stipulate some conditions for allowing that for a certain fixed duration of leave of any kind, i.e., 4 months or 6 months, etc. But that specific provision has to be made part of the Employee Manual/Leave Rules of the company, besides the agreement or appointment letter of the employee.

Thus, until the company formally makes such provisions, HR would be quite wrong to deny these benefits to the employee merely on a presumptive basis. Any litigation-happy employee can obtain these benefits through the court of law in the absence of such provisions in the company's rules.

So, you may like to review your opinion on the issue.

Regards,
PS Dhingra
CEO cum Management & Vigilance Consultant
Dhingra Group of Consultants
New Delhi
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Balaji, there needs to be clarity in your question. I think you are asking when a person goes on leave without pay, do we need to deduct salary only in basic or in other allowances as well, like HRA, Medical, right?

Whenever a salary structure is designed, an employer splits it into different components like Basic, DA, HRA, conveyance, special allowance, etc., according to the style he adopts. Whatever nomenclature you use, all are part of the salary, do you agree? Therefore, when he goes on leave without pay, the whole salary needs to be taken into account.

Secondly, if you choose to deduct only the basic salary and pay HRA and other components in full, there may be a sense of complacency in the minds of employees that he loses salary only in Basic; so he may not take it seriously, after all, it's only a small amount he loses. This might lead to more absenteeism.

Regarding medical allowances, some companies pay it as an "Allowance," and others pay it as "reimbursement." As long as you pay it as a monthly allowance, it forms part of the salary and deserves to be deducted when he goes on leave without pay.

Whereas when you treat it as reimbursement, he can also submit medical bills for the expenses incurred for his dependents. Hence, irrespective of his leave without pay, you need to pay him as per his eligibility. The Income Tax Act also permits medical reimbursement up to Rs. 15,000/- per annum as exempted. (Remember, it must be on the production of bills)

Hope it makes sense.

Balaji

Dear Anuja, you may like to review your question by checking the position in view of my opinion expressed above: whether the medical and HRA are allowed as fixed allowances or as a certain percentage of the basic salary? I have already expressed my views that if medical and HRA are distinct allowances and are not percentage-oriented to the basic salary, these can be allowed even during leave without pay. However, if these are allowed on a percentage basis of the basic salary, they cannot be allowed if no salary becomes due to the employee.

Regards,
PS Dhingra
CEO cum Management & Vigilance Consultant
Dhingra Group of Consultants
New Delhi
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Anuja, kindly let me know, should HRA and medical allowances change if leaves are without pay in salary, or should only basic pay change? Awaiting replies. Thanks a ton in advance.

Regards,
Anuja

Dear Anuja, replying to your query, I would like to tell you that your HRA and medical allowance will certainly change along with basic pay if the leave is without pay. This is because everything is calculated based on basic wages and the number of workdays in a month. Therefore, as the number of working days is reduced due to leave, the basic pay will change, resulting in changes in other allowances as well, ultimately affecting the net pay. I hope you will be satisfied with the answer.

Regards

Salary Components and Leave Policies

Normally, the salary has various components, including HRA and Medical, which are also paid by some companies as part of the monthly salary. Under this system, as far as medical expenses go, employees are not required to produce any bills, and the salary is computed based on the number of days they work in the month.

Even LTA is paid monthly in some companies. In certain companies, there is a rule that employees need to go on leave for a specified number of days; upon their return, they must provide air/train tickets and other expenses incurred to claim LTA. According to the IT Act, companies follow block periods, etc., to qualify for exemption from income tax, etc.

Similarly, in some companies, the medical allowance is paid only upon the submission of medical bills, making it a reimbursement that is included as one of the perks.

Therefore, what I am trying to convey is that when there is no requirement to produce bills for Medical or LTA, and they are paid as part of the monthly salary, it is reasonable to deduct those components when an employee is on unpaid leave. By doing so, the employer will not be perceived as engaging in anything unethical or illegal.

Regarding HRA, whether an employer pays it based on a certain percentage or a fixed sum, it still constitutes part of the salary. It is at the employer's discretion and company policy whether to provide it in full even during unpaid leave or deduct it proportionately based on the number of days the employee is on unpaid leave. I do not see any issue with deducting HRA when an employee is on unpaid leave either.

I look forward to hearing from other HR managers working in different companies to shed light on this matter.

Regards,
Balaji

Dear Balaji, I request you to please revisit my views where I said, "In my view, UNTIL the HRA and Medical Allowance are calculated and expressed specifically in terms of a certain fixed percentage of the basic salary, the management would not enjoy the right to deny these facilities to the employee, more particularly for his medical treatment."

We should not go by mere presumptions. We need to look at the situation while taking care of the real position as recorded in any organization. No common system is adopted by all organizations. Salary structures differ from one organization to another.

You must have noticed that Anuja has not provided details on the types of components of the salary allowed, such as whether medical and HRA are granted as a fixed percentage of the basic pay or a fixed lump sum, whether they are paid monthly or in the form of reimbursement of claims preferred by the employee, etc.

If these allowances are of a specific percentage of the basic pay, only then can these allowances be affected, as they would have a direct relation with the basic pay. However, if these allowances are of a fixed lump sum nature, regardless of whether they are paid monthly or reimbursed upon the employee's claim, these allowances will not have any direct relation with the basic pay, specifically medical charges, and cannot be affected by the reduction of the basic salary.

Mr. Dhingra,

Normally, the salary has various components, and these HRA and Medical allowances are also paid by some companies as part of the monthly salary. Under this system, as far as medical expenses go, employees are not required to produce any bills, and the salary is computed based on the number of days worked in the month.

Even LTA in some companies is paid monthly. In some companies, a rule is set stating that employees need to go on leave for a certain number of days; upon return, they must produce air/train tickets and other expenses incurred to claim LTA. According to the Income Tax Act, they follow block periods, etc., to be exempted from income tax, etc.

Similarly, in some companies, medical allowance is paid only upon the production of medical bills, which means it is a form of reimbursement and is provided as one of the perks.

Therefore, what I am trying to convey is that when no bills are required for Medical or LTA, and they are paid as part of the monthly salary, there is nothing wrong in deducting those components when an employee is on loss of pay. By doing so, the employer will not be labeled as acting unethically or illegally.

Regarding HRA, whether an employer pays it as a certain percentage basis or a fixed sum, it still forms part of the salary. It is at the discretion of the employer and their company policy whether they allow it in full even if there is a loss of pay, or deduct proportionately based on the number of days the employee is on loss of pay. I do not see anything wrong in deducting HRA when an employee is on loss of pay.

I hope other HR managers working in different companies can shed light on this.

Regards, Balaji

Dear All, Thank you all for the replies. Mr. Dhingra and Mr. Balagi have already shared their valuable views on the topic, and I am truly thankful to them. I am new to HR, so perhaps I framed my question incorrectly, but I have definitely received answers to my query.

Understanding Salary Structure

In our organization, the salary structure was established long before I joined. HRA and Medical allowance are granted as a fixed percentage of the Basic pay and are not provided as a fixed lump sum or reimbursed. Based on the responses I have received, it seems that HRA and Medical allowances are subject to reduction from the salary in the case of unpaid leave.

I believe that my understanding is correct now.

With Best Regards, Anuja Puranik

In this discussion, I am in agreement with Mr. Balaji's opinion. Irrespective of whether HRA and any other allowance (which is a part of the monthly salary of the employee) is a percentage of the basic salary or a fixed allowance, it is directly linked to 'salary days payable'. Hence, in case of absence or leave without pay, not only the basic salary but all the monthly allowances will be deducted proportionately. This is a very commonly followed practice across all industries in India, and I have not come across any organization making an exception to the above practice. As stated by Mr. Balaji, this practice is perfectly legal and ethical.

Dear Balaji, I request you to please revisit my views where I said, "In my view, until the HRA and Medical Allowance are calculated and expressed specifically in terms of a certain fixed percentage of the basic salary, the management would not enjoy the right to deny these facilities to the employee, particularly for his medical treatment."

We should not go by mere presumptions. We need to look at the situation by taking care of the real position as recorded in any organization. No common system is adopted by all organizations. Salary structures differ from organization to organization.

You must have noticed that Anuja has not provided information on the types of components of the salary allowed, whether medical and HRA are granted as a fixed percentage of the basic pay or a fixed lump sum, whether paid every month or in the form of reimbursement of claims preferred by the employee, etc.

If these allowances are of a specific percentage of the basic pay, only then can they be affected, as in that case, they have a direct relation with the basic pay. However, if these allowances are of a fixed lump sum nature, regardless of whether they are paid monthly or reimbursed upon the employee's claim, these allowances won't have a direct relation with the basic pay, specifically the medical charges, and cannot be affected by the reduction of basic salary.