Dear AKS 17 ,
1)Wages definition under payment of gratuity act 1972
Section 2 (s) of Payment of Gratuity act defines “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
2)The intent and objective of the this statute should be to exclude from the purview of the definition of wages only such payments like Bonus , HRA, Overtime wages and other allowances . The Special Allowance may fit into exclusion category as an allowance from the definition of wages as long as this payment remains to at a reasonable percentage of Basic salary or similar to HRA ,Bonus,Over time which are restrictively linked to certain percentage or norms in accordance with the respective statutes . In the case of Special Allowance which is abnormally high and greater than the very Basic salary , it is an ostensible act on the part of employers to circumvent the statute and thereby restrict / deprive the enhanced monetary benefits due to employees arising out of provisions of the Payment of Gratuity Act 1972 by taking shelter under the definition of wages under the statute .
3)The payment of gratuity being a social security legislation , a more broader and benevolent interpretation of the definition of wages has to to be taken..
In the current situation , it is permissible/open to an employer to fix the salary structure of an employee who is designated as an Executive in a supervisory cadre, as below
Basic Pay : 36,000( 45%)
HRA : 18,000 ( 22.5%)
SPECIAL Allowance 26,000( 32.5%)
Gross salary : Rs 80,000/ P.M
4)Whilst in the absence of Dearness Allowance which is an definite ingredient of salary /wages under the payment of Gratuity act 1972 essentially meant to secure and further the standard of living of the employee, it is an unfair and grossly exploitative on the part of the employers to allocate major portion of gross salary ( say more than 30% of gross salary) detrimental to the interests of the employee’s terminal dues / retirement benefit .
5)In should be held that any such Any allowance irrespective of its nomenclature which is fixed at an unreasonable and illogical quantum should be held to be dubious and subterfuge and that such allowances ( irrespective of its nomenclature ) should be an essential ingredient of salary /Wages as defined under the payment of Gratuity act 1972 and hence should be reckoned for the calculation of gratuity .
6)It may not be out of context to highlight here that in certain negotiated wage settlements , the managements /employers do agree in response to demands of union to treat certain wage components like ad-hoc, special Allowance etc as part of basic wages for the purpose of reckoning the statutory benefits like provident funds, Overtime, gratuity act . Whilst such agreements are possible through direct negotiation at bipartite /tripartite forum ,why not such special allowance be deprived to those employees in supervisory /executive cadres who are neither bargainable employees nor unionized.
7)It is an acceptable practice in industry fix the Basic salary and Dearness allowances applicable to union employees at anything between 60% and 90% depending upon the outcome of wage negotiation between employers and workmen .
8)The objective of this fixation of salary structure is conscious decisions between parties aimed at ensuring employees’ statutory benefits like OT,PF , gratuity etc. This being so, only a particular category of employees in an Establishment cannot be allowed to denied the benefit whilst the statute seeks to extend the benefit of gratuity all employees.
9)As the statute ( Payment of gratuity act 1972) does not make a distinction between employees of bargainable employees and supervisory / executive employee ( as per broad definition of employee under the act, it is gross erroneous and devoid of natural justice to keep off special allowance from the ambit of wages under teh statute with respect to supervisory/ executive/managerial cadres who are otherwise eligible employees for receiving gratuity under the statute .
Therefore the dual standards in dispensation of gratuity is arbitrary , capricious and against the spirit of the provisions of the the act.
Any aggrieved member can make the aforesaid submissions before the controlling authority to claim the benefit of special Allowance being reckoned as wages/salary for the purpose of calculation o f gratuity