Is It Wrong to Use 'Other Allowance' in Salaries? Seeking Advice on Legal and Practical Alternatives

Dear All,

Greetings for the day. Also, accept my heartiest Diwali greetings in advance.

Please be informed that our company is a construction company, having several projects running at various places all over India. In our company, the Gross Salary structure consists of components like Basic, HRA, Transport Allowances, etc. One such component is 'Other Allowance,' which is basically to compensate for all and any kind of allowances that are required to be paid at different regions/localities of the various project sites. For example, somewhere 'shoe allowance' is to be paid, and at some other project 'night allowance' is required to be paid, and so on. To compensate for all these varieties of allowances at different locations, our management is paying 'Other Allowance' as a component of the gross salary in addition to the other common allowances like HRA, Trans. Allowance, etc.

Recently, I came to understand from a reliable source that the nomenclature 'Other Allowance' should not be used as a component of the gross salary and that we have to have a specific allowance instead.

Kindly enlighten me on whether it is really improper to use 'Other Allowance' as a salary component, specifically for statutory reasons? Can there be a suitable alternative nomenclature for the same to resolve our purpose?

Looking forward to inputs from all my seniors, experts, and colleagues... and thanking you in advance for anticipated responses.

Regards,
Soma Das Kolkata.

Greetings of the Day. I have come across CTC structures of a few companies in which 'Other Allowance' has been included as a part of Gross Salary. Though, as suggested by the person known to you, it would be right on the part of your company to define the specific salary component for the purpose it is paid rather than mentioning it merely as an Other Allowance, it is bound to create a Compensation Grievance issue.

Normally, allowances like Shoe Allowance, Washing Allowance, and Night Allowance are paid to junior and middle-level employees who are very conscious of the package they are paid compared to their colleagues. This is vulnerable to discussions between employees as to why a colleague is paid one particular allowance and why another is not. This might give rise to unrest within the organization among such employees who have a tendency to compare salaries and voice any difference found.

To avoid this, you can have a common component naming it either as Additional Allowance or Special Allowance. Please give thought to the above and discuss with your management.

Regards,
Sumeet

Thank you so much for your kind response. I will definitely discuss with the management the alternative nomenclatures as suggested by you. However, before that, I just wanted to know whether any of these nomenclatures have any implications regarding statutory compliance because it was the PF Enforcement Officer who raised the question about this 'Other Allowance' as a salary component.

Regards,
Soma.

PF is calculated on Basic Salary. Other Allowances are not considered for the calculation of PF. However, for calculating ESI, you have to take into consideration Gross Salary, in which this component will be calculated as a part of the salary. Other allowances have no statutory implications because they are just a part of Gross Salary and CTC in the wider picture.

Please let me know the comments/views of the PF Officer.

Regards,
Sumeet

Greetings... Happy Diwali! In our company, the gross salary components consist of Basic + HRA + Transport Allowance + Child Education Allowance + Soft Furnishing Allowance (for certain grades only) + Other Allowance. The PF enforcement officer pointed out that "Other Allowance" should be a specific allowance, and the nomenclature should not be like this. However, for us, specifying it would be difficult because we are covering any and all kinds of allowances applicable for various projects running in different parts of India.

That's why I raised the query regarding the implications of continuing the nomenclature "Other Allowance" and/or a suitable alternate nomenclature that would serve our purpose.

Regards,
Soma.