Understanding DA and Minimum Wages
If the total amount paid is not less than the sum of the basic wages and dearness allowance (DA) fixed by the government as the minimum wages, there is no need to give DA. However, for all purposes including calculating bonuses, leave encashment, and even gratuity, the total wages should be considered.
Reasons for Salary Increases
You should remember that an employee is given a salary increase for two basic reasons: to reward performance and to compensate for the increasing cost of living. The former is identified by an increase in the basic salary, and the latter by an increase in DA. There are companies that give a salary increase every year, but it is not reflected either in the basic salary or in DA. In many establishments, DA is not a component of salary but is put under a separate head, maybe "special allowance" or even "other allowance."
Understanding Special and Other Allowances
Special allowance is paid only to some employees considering the special skills they bring to the task. If it is a component of the salary payable to all employees, it will be deemed part of basic wages only. Again, there is no allowance called 'other allowance'! There can be traveling or conveyance allowance, house rent allowance, night shift allowance, hill allowance, winter allowance, and many other allowances, but what is "other allowance"? Therefore, ensure some basic things about compensation management before fixing the right salary.