Whether an employer has the authority to halt an employee's increment and dearness allowance without providing a valid reason?

We inquire whether an employer has the authority to halt an employee's increment and dearness allowance without providing a valid reason or prior notice.

Under an incremental time scale the employer cannot hold increment of an employee without reason. But iif there is justification, he can do so. Still, holding increment of Dearness allowance is not legally maintainable.

Why should an employee be given increment? Two reasons, one to reward the performance of an employee and two, to compensate the increase in the cost of living. The former is evidenced by an increase in the basic salary and other allowances whereas the latter is to be given as an increase in the DA. If the performance of the employee is not upto the mark, then the employer can hold increment on basic salary. It should be communicated to the employee also that there are certain areas where he should require improvements and therefore, no increment can be given to him. But since the second one, increase in DA is a legal responsibility based on the cost of living index, if you hold it, it may fall on you. The employee may suffer a lot to sustain and that could make him even less productive.

Halting increment and DA without notice or sharing reason is a bad HR practice. At the same time increment is not a matter of right unless the Rules say that increment is drawn as a matter of course and won't accrue if there is a specific order to that effect. The matter has to be examined further from your rules. DA, is it being withheld wholly or is it only the DA consequent to the increment? Total DA withholding is illegal & inhuman.

If employees basic pay + DA is more than the minimum wages and DA whether in that case even though increased DA portion needs to pay ? In our pay scale we maintain basic and DA much more than the prescribed by government. Every year we take the review also at the time of increment.

The logic of paying DA is to ensure that the employee will not suffer due to increase in cost of living. Suppose that an employee is earning Rs 100. At the same time, the wages fixed by the government is Rs 90. The government declares an increase in the DA and make it Rs 95. Still you are above the statutory salary. But already the worker should be spending on the presumption that his earnings is Rs 100. When there is an increase in cost of living, he will have to compromise on some other priorities and that would affect his productivity. That should not be allowed.

Thanks Madhuji for your kind reply.

But herein the practical issue is, if present Basic + DA is say 12,500/-. employer is paying 15000/-. Normally DA increases between 300-500 half yearly. Under the circumstances what law says, whether needs to pay the increased DA?

According to me [practical approach] when salaries/wages are paid only as per government guidelines i.e. minimum wages and DA, in that case whenever it increase employer has to act accordingly. And even considering such increase, if the basic and DA is already more than that, no needs to give increased basic/DA. At the time of Annual increments normally employer take such calls and to avoid lapses in statutory compliance he frame salary structure by taking last year review.

Legally, what you say is right. But it is a legal issue. When you award punishment of pay cut, it should not reduce the DA part though you can stop increment for two or three years (with cumulative effect or without cumulative effect as decided by you), but when it comes to fixed DA which is always a percentage of Basic pay would reduce to the extent the basic pay is reduced. I still doubt if the variable Dearness allowance being a compensatory allowance to compensate a price increase can be denied to an employee even if the total emolument is above the statutory salary.

Ok. Thank you Madhuji.

Thanks for your kind reply.