How Are Medical and Fuel Reimbursements Affected When Salary Is Deducted for Fewer Days?

My question is this: if an employee has a reimbursement as part of their salary, such as a medical reimbursement of Rs 1250 per month and a fuel reimbursement of Rs 7500 per month, and if the salary is paid for fewer days (e.g., salary is deducted and paid for 20 days), will both medical and fuel reimbursements be deducted proportionately? In other words, will they be paid for 20 days only, or will they be paid in full? For instance, even if an employee works for only 2 days in a month and receives a salary for 2 days, will the employee get fuel and medical reimbursement for those 2 days only?

Since it is part of the salary but listed as reimbursements for tax purposes, the same shall be deducted proportionately based on the number of days worked if there are leaves without pay. In the case of leaves with pay, obviously, full pay will be given, and the reimbursement will also be paid in full. At the same time, in the old salary scale setup (not the present CTC style), these are not part of the salary but are purely employee benefits; therefore, they will be payable for the full month.

Regards,
Madhu.T.K

Mr. Madhu's comparison of the conventional scale-based salary and the present CTC-based salary compels me to adopt a different perspective to answer the question. As rightly pointed out by Madhu, certain allowances like medical reimbursement, Leave Travel Concession, Educational Fee Reimbursement for children, etc., are granted to employees as welfare measures.

If we conceptually analyze these welfare benefits and their periodicity of payment, we can find them to be only occasional payments, that too for some definite purposes. Of course, it is not wrong to include them notionally for the purpose of determining CTC.

So, my personal view also is that such occasional payments connected to welfare need not be deducted for absence on a pro-rata basis. At the same time, certain allowances partaking the nature of compensating some special expenses incurred by the employee in connection with the performance of his job can well be related to attendance.

Components of CTC and Pro-rata Deductions

Some components are split to arrive at CTC. For the people who are in CTC, these components will be deducted on a pro-rata basis.

Regards,
Pon

As Madhu explained, any component that is part of the salary will be prorated.

Understanding Remuneration and Reimbursements

Remuneration is the result of an employee-employer relationship. Total remuneration is split into certain components like basic salary, dearness allowance, house rent allowance, conveyance allowance, telephone allowance, education allowance, medical allowance, and so on. Sometimes, certain elements of salary are paid as reimbursements. For example, instead of a conveyance allowance, there might be fuel reimbursement; for telephone allowance, there could be telephone reimbursement; and for medical allowance, medical reimbursement can be paid, etc., upon production of original bills. This arrangement is available as long as the employee-employer relationship exists. That is why reimbursements are taken pro rata for the month in which the employee joins and for the month in which they leave, or simply, it is available in full for the days during which the employee-employer relationship existed.

Purpose of Salary Components

If we analyze the purpose for which each component of salary is paid, we find that each is related to employment. For example, if conveyance allowance, which is part of the salary, is paid to the employee to meet their traveling expenses from residence to office and back, should we pay it if they have not come to the office? If telephone allowance is paid to recoup expenses incurred by making official calls from a personal telephone, should it be paid if no official calls were made during a month or part of the month? If medical allowance is paid as part of the salary, it is meant to take care of the employee's health while being employed, so will it be paid when they have not worked? We will not pay it because these are allowances forming part of the salary.

Reimbursements and Employee-Employer Relationship

When it comes to reimbursements, it is not actually limited to travel to the office or making official calls, but you are getting it for personal travel (fuel reimbursement), personal calls, or medical care of family, and all these are available as long as the employee-employer relationship exists.

Reimbursements During Leave Without Pay

The main problem arises when the employee is absent or on leave without pay for the entire or substantial period of the month. In such a scenario, claiming the reimbursement alone will not hold good, just like claiming salary for the off days and holidays intervening a whole range of leave without pay. If we view it in that direction, why can't we say that reimbursements should also be paid pro rata if there are no paid days? This is an outcome of the thought that on days without pay, there exists no employee-employer relationship! It is just a thought, please share your views.

Regards,
Madhu.T.K

Madhu has advanced really nice arguments for his viewpoints on the matter, and all the more, they are easily comprehensible and highly practical as well. Hence, my present response is not counter-argumentative but complementary to fill the void that can emerge with reference to the nature and purpose of certain allowances. The grant of these allowances is not merely to increase the employee's real or monetary wages but to keep them as dignified members of society.

Nature of Industrial Employment

Considering industrial employment as it is currently, it is a sustained relationship between the parties to the contract of employment. Based on its perpetuity, which is limited subject to the agreed conditions in the contract, the practice of paying monthly remuneration, not just as a mode or periodicity of payment, came to be widely recognized as a system of compensation for the service rendered by employees as per the contract.

Compensation for Employment vs. Casual Work

In this context, compensation for employment cannot be similar to payment for casual nature of work. If that is the case, there would be no necessity to pay for leave of absence except for statutory compulsion. Here, readers should kindly understand that I am not arguing for habitual or wanton absenteeism.

Take the case of an employee who has availed all the leave at their credit but goes on leave on Loss of Pay (LOP) either for their own treatment or their spouse's. Would it be fair to effect a pro-rata cut of the medical bills actually paid by them? Can we also refuse a proportionate amount of educational allowance for their children?

Cost to Company (CTC) and Employee Benefits

Cost to Company (CTC) is an accounting concept to evaluate the total cost incurred by management in respect of each employee. Take the case of employees in managerial or white-collar jobs and in essential services. Will their CTC be proportionate to the actual value, time, and energy they spend on their jobs? I don't mean to say that such benefits should be freebies. Every benefit should be given measuredly. But that measure should not be stingy like a pro-rata basis.

Even for certain statutory social security benefits, a minimum length of service is prescribed for eligibility and entitlement. So, there is no harm in prescribing broader norms rather than a pro-rata basis with reference to CTC.

I endorse the views expressed by Umakanthan and Varghese. I do not believe that on days the employee remained on leave without pay, there will be no employee-employer relationship. In continuous service, the basic theory is that the employee-employer relationship will continue until such a relationship is terminated. This is true in the case of employees on regular rolls, though in the case of casual employees, the relationship exists only on the days the employee is hired or engaged for work.

Reimbursement as Part of Salary or Benefits

The argument is all about whether the reimbursement is part of salary or benefits. I still doubt, in the present scenario, these reimbursements are part of salary only and are taken as reimbursements for tax benefits because nowadays the total CTC is the amount offered to an employee in return for the work extracted from him. While designing the said remuneration, we will take a part of it as salary and a part as reimbursements, which will not attract tax. If so, why don't we deduct the claim pro rata if the employee has not worked for the entire days in the month, just like his salary is reduced proportionately to the days worked?

Regards,
Madhu.T.K

Yes, the reimbursement will be calculated based on your paid days. For example, if you are being paid for 25 days in June, then all your reimbursements will cover those 25 days.

My cash salary is $10,000 + $3,500 conventional. Now I want to know what my salary should be if I take a leave, and what the deduction should be for one day of leave.