Understanding Labour Law: What Does 'Special Expenses' in Wages Really Mean?

Kindly clarify the following sentence when it appears in a Labour Law used while defining wages: What does it exactly indicate?

"Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment."

Understanding Special Allowance in Salary Components

This is nothing but a Special Allowance paid as a component of the salary. As per law, special allowance (other than Dearness Allowance) is paid to employees who take on additional responsibilities and risks in carrying out their duties and are not paid at par with other employees. This amount covers or defrays some additional expenses incurred by an employee to keep their knowledge updated or their health intact, which may be affected due to the nature of the work. It is an additional amount that a particular category of employees receives as part of their remuneration.

In the current scenario of private establishments where there are no parameters for fixing salaries, we fix them as per the market. In this process, we first decide how much one's salary should be, then allocate a fraction of it as the basic salary (usually the least, as there is a tradition that PF, Bonus, Gratuity, and other statutory benefits are calculated based on the basic salary). Another component is allocated as HRA, another as conveyance, and a significant sum as Special Allowance. Surprisingly, this special allowance is paid to all, including clerks working in the office and workers entering high-temperature vessels as part of their ordinary work.

In this salary fixation, the so-called special allowance under discussion is not the one commonly paid to all employees, irrespective of whether they have additional responsibilities or need to defray any special expenses. These common special allowances are considered part of the salary on which PF, Bonus, Gratuity, etc., should be paid. On the other hand, the special allowance mentioned above, as an amount paid to cover special expenses, is only given to those undertaking special tasks and is not part of the salary for the purpose of PF, bonus, gratuity, and other payments.

Regards,
Madhu.T.K

In addition to what Mr. Madhu has stated, I would like to share my views on the question. In general, wages, salary, remuneration, pay, etc., are synonyms indicating the total sum of payments made by the employer to the employee for the work done over a fixed period as agreed upon in the contract of employment. The connotation may differ according to the status and mode of employment.

Formal Employment and Remuneration Structure

However, when employment becomes formal, regular, and structured, in order to minimize certain indirect commitments of the employer towards fringe benefits like social security, bonus, etc., as suggested by Madhu, the total sum payable is broken into different components such as basic salary, dearness allowance, House Rent Allowance (HRA), conveyance allowance, medical allowance, traveling allowance, and the like.

An employer's progressiveness, generosity, and people-oriented approach can be deduced from the remuneration structure adopted. Unfortunately, the opposite is often true based on the principle of Cost To the Company (CTC).

Special Allowance as a Component of Wages

When it is not possible to classify any portion of the payment, it is termed as a special allowance without any specific relevance to the employment or payment itself. This is how it becomes a component of effective remuneration for the purpose of the employer's statutory financial commitments, as indicated by Madhu.

If I remember correctly, there is a Supreme Court judgment upholding any payment under the nomenclature of Special Allowance as an inseparable component of wages. Therefore, the phrase "any sum paid to the person employed to defray special expenses entailed by the nature of employment" indicates only the direct relationship between the employee's performance of duties and the expenses.

Respected Dear Madhu ji & Umakanthan ji, With due respect to both of you Sirs, my submission to the query is as follows:

The queriest is talking about SPECIAL EXPENSE entailed on him and not about SPECIAL ALLOWANCE.

Definition of Wages

The definition of wages, as given in different enactments and considering the general definition with broad analogy, does not include any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment.

I feel the queriest wanted to know what the special expenses entailed on him by the nature of his employment are.

If an employer incurs, spends, or pays any sum to/on an employee because of his nature of employment, this sum should not be considered as wages. For example, washing allowance paid to shop floor employees, certain allowances paid/expenses made only for doing a particular kind of work such as cashier allowance, expenses on milk for doing night shifts, certain allowances paid/expenses made for employment in hazardous processes, etc. Payment for jaggery in cement factories is of this kind.

Hope I am not wrong in my reply.

Yes, Mr. Korgaonkar, we also mean the same but with more emphasis and explanation on the head of allowances under which such expenses are compensated by the employer in practice.

"Any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment."

In my opinion, this special expense, like a uniform allowance, is given to people who are required to wear a uniform for the purpose of cleaning and maintaining their uniform.

What Shri Korgaonkar has written is the correct meaning of the sentence/term.