Is Merging HRA and Allowances into Basic Salary a Good Move for Employees?

Regarding Merge of HRA & Other Allowances to Salary

Dear Seniors, you are all requested to kindly guide me on the benefits of merging the HRA, Special Allowances, bonus, Leave Pay, and Medical into the Basic Salary.

Our esteemed organization provides the following benefits to employees along with the Basic Salary:

• Special Allowance as per Grading of Staff
• HRA
• Bonus of 20% (released yearly)
• Medical equivalent to 1 month Basic Salary (Released yearly)
• Leave Encashment equivalent to 1 month Basic Salary (released yearly)
• PF
• ESIC
• GSLI

Now, the management is deciding to merge the benefits from Sl. No. 1 to 5 into the Basic Salary effective next FY.

Is it beneficial to the staff or not?

Please reply.

Thanks
Regards

Yes, it is beneficial to staff as it will increase the retirement benefits as well as PF contribution.

Pon

One obvious benefit is that an employee stands to gain more Dearness Allowance (D.A) and more gratuity since both are linked to basic pay, as well as Provident Fund (P.F) if it is managed under your company's trust. This also applies in the case of Voluntary Retirements (VRs) since the VRS compensation is linked to basic pay.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

I agree with the views given by Pon and Saikumar. The disadvantage for the management is that a graded pay structure will not be implementable. For example, a new joiner with no experience won't know the perks of higher positions—salary will be on an individual basis, without a hierarchy indicating where an employee fits in. A manager may end up receiving a lower gross salary compared to his subordinate.

Regards,
Rajusiachen