How Should We Handle a Special Salary of Rs. 2000 Every Five Years Without Legal Issues?

Requesting clarification for the following:

Average Gross Salary and Special Salary Consideration

The average gross salary of our workmen, totaling the components i.e., Basic/HRA/CON.ALL/MED/LTC/SPL.A., is approximately Rs. 48,000. After a 10% increment for 2022-23, the gross salary became Rs. 52,800. However, the company wants to provide a special salary of Rs. 2,000 once every five years, which will not be added to the gross salary but will be shown separately under a "different heading."

As such, only the gross salary will be considered every year for salary revision purposes, and not the special salary of Rs. 2,000 under a different heading, which will remain unchanged. For example, Rs. 52,800 will become Rs. 58,080 after a 10% increment for 2023-2024, but the Rs. 2,000 under a different "heading" will remain the same.

Legal Implications and Naming Suggestions

Kindly let us know whether there are any legal implications if we keep the special salary of Rs. 2,000 under a "different heading" out of the gross salary to avoid yearly increments on the special salary.

Further, kindly suggest a suitable name for the special salary as we would like to replace it with another appropriate heading.

Requesting our esteemed readers to educate us on the above.

One nomenclature widely used for such a purpose in Government organizations/PSUs is 'Personal Pay'. Normally, Personal Pay is not counted for any purpose like DA, gratuity, bonus calculation, etc., unless it is specified to be included. The Personal Pay could be protected over any length of time or later merged into Basic Pay, as decided.

Personal Pay and Loyalty Pay

Personal Pay is normally a temporary arrangement when the revision takes place on a percentage of gross pay and will be merged with the basic pay once the next slab increment in the time scales becomes effective.

In the cited case, the amount of Rs 2000 accrues after a period of service, say five years. If so, why don't you call it Loyalty Pay? It can be paid in a lump sum once a year, that is Rs 24000 in one lot or monthly. It is always good if you pay it annually so that there will not be any confusion regarding its inclusion in gross pay, which qualifies for an increment.

When it is paid every month along with the monthly salary, it can be disputed that it should be included in the salary for the purpose of an increment. But if it is paid annually as a loyalty allowance or loyalty pay, available only to those who have completed a certain number of years of service, the same can be excluded from the gross salary for all purposes.

I have a similar situation. The company is paying for group insurance from their account for all employees. For income tax benefits, the company wants to show that amount in the salary sheet as an additional part (total insurance amount divided by the number of employees, to each employee—for example, the total insurance amount is $50,000, and the number of employees is 10, so $5,000 to each employee) in the month of April only. However, they want to show a deduction of the same amount from the salary for April itself.

Can anyone please advise on how it can be implemented?

As statutory deductions other than PF, ESI, PT, MLWF, advance, etc., are not permitted, under which head of deduction can this be mentioned?