Understanding Bonus Wage: Why Is House Rent Allowance Excluded Despite the Act?

Wage definition under the Payment of Bonus Act, 1965, House rent allowance is not under the exclusion clause; then how is it excluded from Bonus wage? It seems incorrect.

Please go through the provisions of the act regarding 'wages' for the purpose of Bonus.

Central Government Act

Section 2(21) in The Payment of Bonus Act, 1965

"Salary or wage" means all remuneration (other than remuneration in respect of overtime work) capable of being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment or of work done in such employment and includes dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account of a rise in the cost of living), but does not include:

(i) Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of foodgrains or other articles;
(iii) Any travelling concession;
(iv) Any bonus (including incentive, production, and attendance bonus);
(v) Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the employee under any law for the time being in force;
(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex gratia payment made to him;
(vii) Any commission payable to the employee.

Explanation: Where an employee is given in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall, for the purpose of this clause, be deemed to form part of the salary or wage of such employee.

COMMENTS

(i) Lay-off compensation is included in the term of "salary" or "wages"; Mohan Kumar v. Deputy Labour Commissioner, (1991) 62 FLR 903 (Ker).
(ii) Dearness allowance and city compensatory allowance are included in the definition of "salary" or "wages" under section 2(21) of the Act; S. Krishnamurthy v. Presiding Officer, Labour Court, (1986) 55 FLR 535.
(iii) Dearness allowance is a part and parcel of wages; Scindia Navigation Co. Ltd. v. Scindia Employees Union, (1983) 2 LLN 63.
(iv) Retaining allowance comes within the purview of section 2(21); Chalthan Vidyut Sehkari Udyog v. Government Labour Officer, AIR 1981 SC 905.
(v) Remuneration in case of overtime work and commission payable to employees are excluded from the definition of "salary" or "wages"; All India Voltas & Volpart Employees' Federation v. Voltas Ltd., 1973 Lab IC 645.
(vi) Overtime allowance does not form part of "wages"; Associated Cement Co. Ltd. v. Their Workmen, AIR 1959 SC 925.
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Understanding Wages and Their Components

Wages mean the amount of remuneration agreed to be paid to an employee. This is the amount that an employee receives for working for a day, month, or any other agreed-upon period. It should include all fixed and regular allowances. It is immaterial whether you break it down into small components like basic pay, HRA, Conveyance, Special allowance, etc.

Determining an Employee's Wages

A simple method to determine an employee's wages is demonstrated below: The gross salary of an employee is Rs 15,000 per month. Of this, the basic pay amounts to Rs 5,000, with additional components such as HRA Rs 3,000, Conveyance allowance Rs 2,000, and special allowance Rs 5,000.

If the employee works the entire month, they will earn Rs 15,000. Suppose they take a couple of days' leave without pay. In that case, Rs 1,000 will be deducted from their salary, resulting in a payment of Rs 14,000, assuming a daily average wage of Rs 500. This means the monthly wages/salary is Rs 15,000. When there is Loss of Pay (LOP), deductions should not be limited to basic wages only; allowances should be paid in full, deducting LOP only from the basic.

Special Allowance Considerations

Special allowance is another salary component that can complicate matters. If this allowance is given to select employees based on special skills or the difficulty of the work, it can be treated separately from the salary. However, if all employees receive this special allowance, it should be considered part of the wages/salary.

The aforementioned principle is not exclusive to bonus calculations but also applies to PF contributions, gratuity calculations, leave encashment, layoff, retrenchment compensation, and other related matters.