Seeking Advice: How to Implement a DA System in Tamil Nadu's Manufacturing Sector?

Dear Seniors, please help me with how to implement a DA system in the manufacturing industry located in Tamil Nadu. Currently, we only have a Basic + Allowances system in place.

Thanks,
S. Boopathi

Merging DA with Basic Salary: A Strategic Approach

Why are you concerned about paying Dearness Allowance (DA) separately? You can merge it with the basic salary. If you pay it separately, it attracts Employees' Provident Fund (EPF) liability. It's better to merge the DA with the basic salary. As you know, minimum wages also include the component of basic salary plus dearness allowance, which is defined by the state government from time to time based on the price index. The liability of EPF, Bonus, and Gratuity also considers basic salary plus DA, i.e., minimum wages. Therefore, it's advisable to merge DA with the basic salary instead of giving them separately.

I am also attaching the judgment copy of Airfreight Ltd. vs State of Karnataka, which will clarify the whole situation.

Thanks & Regards,
Sumit Kumar Saxena

Please check with your management first whether they want to introduce the DA system, which is normally linked with the compensation mechanism of employees in government organizations. My personal suggestion to you would be not to launch any such initiatives on your own which increase the 'Employee Costs' in an organization.

D.A has huge, recurring, and incremental direct and consequential financial implications. It requires top management's approval. D.A is linked with the All India Consumer Price Index published by the Government Labour Bureau. The objective is to provide an allowance to meet the "cost of living." There are various indices available.

So before addressing HOW, please get the answer for WHY you want to go for it.

Regards,
Shailesh Parikh
Vadodara, Gujarat
[Phone Number Removed For Privacy Reasons]

Introducing a DA system is not too complex but is cumbersome. As you are aware, the DA system is linked to the Cost of Living. The DA is connected to the rise in the consumer price index published by the Government, and these details are provided in the monthly magazine titled "Uzhaipavar Ulagam" by the Government of Tamilnadu, Labour Department located in Teynampet, Chennai. If you subscribe to the magazine for 20 years, the cost is very nominal, and you will get a sense of the points' increase over the past few months.

Generally, companies offer a fixed DA that aligns with the Minimum Wages prescribed for the industry. Afterward, for each point's increase, they provide a monetary compensation, for example, Rs. 1.50 per point. If there is a rise, the DA increases, and if there is a fall, the DA decreases. However, the points for the current month will only be published next month, making it challenging to backtrack the wages paid. Therefore, companies establish a policy to revise the DA at a frequency (number of months) based on the DA's rise or fall. If there is a union, this may become a contentious negotiation point regarding monetary compensation for each point's increase (Rs. 1.50 per point as mentioned above).

Please carefully consider this, create a sample worksheet for the past 2-3 years, study the wage implications if you had implemented it 2-3 years prior, compare the CTC increases, and then propose it to the management.

Regards,
M.V. Kannan