Navigating Subsistence Allowance: Are Statutory Deductions Like ESI and PF Included?

Whether any statutory deductions (ESI/PF/Professional Tax) attract subsistence allowance?

If the employer forgives the employee upon the charge which caused his suspension, should the employer pay the remaining portion of his normal wages after adjusting subsistence allowance during the period?

Subsistence Allowance and Statutory Deductions

Subsistence allowance will attract ESI. In ESI Corporation vs. Popular Automobiles, the Supreme Court has stated that subsistence is considered wages. However, subsistence allowance, being a remuneration payable to an employee placed on suspension and not earned by working in the company, shall not be considered for PF deduction. Profession tax is a tax on earnings/revenue, not restricted only to salary income, so any receipt should attract it. Therefore, subsistence allowance should attract profession tax.

Reinstatement and Back Wages

Once the employer reinstates the employee with back wages, the employee should be paid salary as arrears after adjusting the subsistence allowance already paid. PF deductions shall be made at that time. If the employer reinstates the employee without back wages, then no salary needs to be paid. Whether back wages should be paid or not depends on the gravity of the charges and the decision of the disciplinary authority.

Even if the employer takes a lenient view due to the employee accepting the charges of misconduct or otherwise, the employer is entitled to treat the period of suspension as "punishment" and not to pay the balance of wages for the period of suspension. However, a detailed written order will have to be passed in this regard.

If the employer forgives the employee upon the charge which caused his suspension, should the employer pay the remaining portion of his normal wages after adjusting the subsistence allowance during the period?

Regards

Let me make it clear that reinstatement may take two forms, namely reinstatement with back wages and reinstatement without back wages. In the former case, the difference between actual wages, considering the days for which the employee was placed under suspension as days worked, and the subsistence allowance paid shall have to be paid. In the latter case, it is not to be paid.