Systems Of Payments Of Dearness Allowance Essay

Normally wage bundle to employees were dwelling of basic pay and costliness allowance. In due class of clip due to alterations in occupation state of affairss, altering environment particularly due to lifting monetary values the basic pay and costliness allowance together were non found adequate as wage bundle provided to employees.

In order to take attention of this state of affairs employers have introduced assorted types of allowances and periphery benefits to do the entire compensation bundle adequate so that employees may be able to carry through their demands and dispatch their responsibilities expeditiously.

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Basic Wage is fixed on the footing of weightage given to occupations in an organizational context at assorted degrees on the footing of accomplishments, attempts, and makings etc. which are required to execute those occupations. Determination of weightage given to each occupation is done on the footing of surveies carried out by industrial applied scientists along with other experts. Practices predominating in other similar administrations are besides taken into consideration.


Employees are employed with a peculiar pay or salary rate. In due class of clip due to monetary value addition, the existent income of employees goes down. It means with the same degree of rewards employees are unable to purchase goods and services, which they were able to purchase before addition in monetary values. Dearness Allowance is paid to employees by manner of counterbalancing them for the loss of existent income caused to them by addition in the cost of populating due to increase in monetary values.


The system of payment of Dearness Allowance is chiefly classified into two classs. They are: –

Not linked to consumer monetary value index Numberss and

Linked to consumer monetary value index Numberss.

( I ) Not linked to consumer monetary value index Numberss

( A ) Flat Rate: – Flat Rate system of payment is a method under which a fixed sum is paid to all employees irrespective of their classs and pay graduated tables. The pattern of paying Dearness Allowance at a fixed rate is irrespective of any alteration in the consumer monetary value index.

( B ) Graduated Scale: – Workers belonging to higher income groups objected to the award of the same sum of Dearness Allowance to all employees irrespective of their rewards or wages. With this background the graduated graduated table system came into being.

Harmonizing to this method Dearness Allowance is paid on a graduated graduated table harmonizing to assorted pay graduated tables. On the footing of different pay scale the workers are divided into groups. Dearness allowance additions with each graduated table of salary addition, but after a bound there is no addition in the sum of Dearness allowance, whatever the pay rate is.

A minimal sum of costliness allowance is besides set for the workers in each graduated table, below which the costliness allowance is non allowed to fall. This method is considered to be just and hence it is rather popular.

( two ) Linked to consumer monetary value index Numberss

Under this system the costliness allowance is linked with the consumer monetary value index figure.

( A ) Flat rate: – In this method dearness allowance rate per point or graduated table is fixed and this varies merely with fluctuations in points of consumer monetary value index Numberss.

( B ) As a per centum of Wage: – In this method the costliness allowance is fixed. It is calculated as the per centum of wage per slab of the consumer monetary value index Numberss.

The costliness allowance is expressed as a fixed per centum of wage and equated to a graduated table of points of the consumer monetary value index. The system of costliness allowance being linked with consumer monetary value index is in trend today.

Prevalent Practice of Paying Dearness Allowance

The payment of Dearness Allowance for cardinal authorities employees is based on the recommendation of the Pay Commissions.

In the banking sector Dearness Allowance is paid as per the Desai Award. Under this costliness allowance is paid at a rate of 3 per centum for every 4 points rise over 100 in the quarterly norm of the consumer monetary value index of the on the job category.

In assorted other industries and commercial houses, payment of costliness allowance is paid in common harmonizing to the graduated tables. In many companies a 100 per centum neutralization system has been introduced against the rise in monetary values. This implies that the employees are under complete protection against the lifting monetary values. On the other manus some administrations have provided a ceiling on the payment of costliness allowances, in footings of maximal sum of costliness allowance collectible to a individual.

Dearness Allowance ( DA )

DA non linked to consumer monetary value index figure

DA Linked to consumer monetary value index figure

Flat Rate i.e. a fixed sum paid to all employees irrespective of their classs

Graduated Scale i.e. D.A. is paid to employees harmonizing to assorted pay graduated tables.

Flat Rate i.e. in this D.A. rate per slab is fixed and the rate varies with the fluctuation in the consumer monetary value index.

D.A. as per centum of wage i.e. D.A. is paid as the per centum of wage per slab of the consumer monetary value index.

Systems of Payments of Dearness Allowance


Apart from the basic Dearness allowance, many other allowances are paid to employees to counterbalance them adequately so that the entire bundle of wage provides them suited compensation bundle. The assorted allowances given to the employees are: –

( I ) House Rent Allowance ( HRA ) : – Administrations are set up in assorted types of locations such as urban Centres ; industrial belt etc.where houses are non available at a sensible rent. If the employees are required to pay house rent as per the prevailing market rates, a significant part of their rewards will travel as house rent and the employees will non be left with sufficient money to run into their other demands.

Hence HRA is paid to the employees enabling them to pay house rent for a suited adjustment. It varies harmonizing to the cost of life in different metropoliss and topographic points.

Employees are paid HRA as per their slabs in their rewards and wages. This allowance is non considered as rewards. The HRA shall besides non be considered for any direct payment like tip, overtime, provident fund etc.

( two ) Leave Travel Allowance ( LTA ) : – Employees while working rarely acquire chance to see topographic points where they can travel and pass sometime along with the members of their households to acquire relaxed and reenergized for the work to be continued with ardor and enthusiasm. For such purpose employees are besides willing to see their native topographic points.

Many administrations have introduced strategies normally called Leave Travel Assistance ( LTA ) /Leave Travel Concession ( LTC ) etc. and this installation facilitates the employees to travel to their place town or topographic points for relaxation and reenergising.

Administrations have different types of patterns for assorted classs of employees.

Normally employees who have completed a few old ages of service satisfactorily are entitled to LTA/LTC.

( three ) Washing Allowance: – While employees are working in assorted industrial procedures, assorted sort of soil gets accumulated on their organic structure and unvarying. If the employees do non maintain themselves clean, they are likely to acquire different types of diseases.

A peculiar sum is paid as rinsing allowance to certain classs of employees and they are expected to maintain themselves clean. In some administration responsibility uniforms are provided to look line employees who straight come in touch with customersaa‚¬a„? . These employees are given rinsing allowance and are expected to maintain their uniforms clean and do better presentation before the client.

Once rinsing allowance is provided, the employers are in a place to implement a criterion of cleanliness on the work force which will finally coerce the employees to maintain themselves clean and in due class of clip, the administration will hold its ain criterion of cleanliness.

( four ) Conveyance Allowance: – For smooth and efficient operation of any administration, employees are required to come to work topographic point in clip. Employees who neither have got a abode in the lodging settlement nor at any nearby topographic points, commutes everyday distance by assorted agencies while coming to -work topographic point. While transposing employees loose hilt of clip and energy and after making work topographic point they find themselves exhausted.

In order to ease employees to come to the work topographic point comfortably and in clip, employers provide conveyance allowance to the employees for availing better conveyance service, or keeping and utilizing ain vehicle. The conveyance allowance is paid to employees for the yearss in which he receives normal rewards. This nevertheless is non paid for yearss on which he is on leave without wage.

( V ) Shift Allowance ( SA ) : – Some administrations are required to work continuously under displacement system because of the nature of production or service they have. Normally there are three displacements 6 A.M. to 2 P.M. , 2 P.M. to 10 P.M. and 10 P.M. to 6 A.M. In order to set up balance among employees, so far shift responsibility is concerned ; the employees are rotated among these three displacements. It implies that all employees will acquire by rotary motion responsibilities at dark displacement every bit.

However there are administrations where a few employees are required to work more in dark displacements and rotary motions are non possible. They are paid an extra allowance called dark displacement allowance because they do occupations often during dark hours which is strenuous. The rate of SA varies from administration to administration.

( six ) Cash Managing Allowance: – There are administrations where one peculiar class of employees handles a batch of hard currency ( currencies and coins ) of assorted denominations. Their occupation is to receive/pay, reassign hard currency sum. While making so, they are required to number hard currency right. Sometimes by manner of echt mistake, they receive less money, pay more money and besides receive bad currencies and coins.

In such state of affairs they are required to counterbalance the loss caused to the employers due to such mistake. Thus an component of hazard is involved. In order to cover this hazard component, these employees receive this allowance on regular footing.

( seven ) Lunch Allowance and Dinner Allowance: – Those employees, who are required to make the work off from the usual topographic point of responsibility during the tiffin or dinner period, are paid tiffin & A ; dinner allowance.

( eight ) Education Allowance: – The instruction allowance is paid to the employees to do the bundle more attractive and facilitate greater spirit to educate their kids.

( nine ) Underground Allowance: – All employees working in belowground operations are entitled to this allowance because the belowground occupation is more strenuous and hazardous.

( ten ) Outstation Allowance: – This allowance is paid to all employees on outpost responsibility.

( eleven ) Servant Allowance: – In order to enable the executives to work in a relax head and free from family responsibilities, they are provided retainers or allowance enabling them maintain retainers.

( twelve ) Social Security Allowance: – This allowance is paid to employees to assist them to protect themselves and their households in an unanticipated state of affairs in life. ‘The employers get their employees insured under assorted types of societal security strategies. The sum for the insurance strategies is paid by the employers.

( thirteen ) City Compensatory Allowance: – In metropoliss due to high monetary values the cost of life remains higher. Employees posted in these metropoliss are paid metropolis compensatory allowance by manner of counterbalancing them against loss of existent income caused to them due to higher consumer monetary value index predominating at that place. This allowance varies in rates harmonizing to consumer monetary value index predominating in assorted classs of metropoliss.

( fourteen ) Overtime Allowance: Daily working hours for workers are prescribed under assorted Acts of the Apostless ‘ Workers working for more than the prescribed hours are entitled to have overtime payments, which is usually dual the ordinary rate of rewards.


When, an administration engages employees, it look into besides their overall public assistance and efficient. In add-on to the basic pay, costliness allowance and other allowances paid to the employees, the employers provide them with a series of benefits so that they can transport out their map expeditiously. The periphery constituent includes a figure of diverse points. Finally, wages and benefits together make up the entire wage of an employee.

The assorted periphery benefits are as follows:

( I ) Vacation Homes: – For the employee the award of a vacation trip at a easy topographic point provides an first-class chance to loosen up with his household. If employees want to see assorted of import topographic points and assorted tourer topographic points, the disbursals are significant. Therefore in order to ease such visits for relaxation and reenergization, administrations construct holiday places. A nominal rate is charged from the employees for the usage of these holiday places. Different types of vacation places are provided for different classs of employees.

( two ) Medical Facilities: – In order to guarantee that all is good with the employees, immediate medical attending is provided at the workplace. Administrations set up ain dispensaries and infirmaries where intervention and medical specialty are provided free of cost or at nominal charges. Incase administration is unable to supply specialized medical services, employees are referred to outside infirmary and dispensaries and disbursals are borne by the employers. Some times employers send their employees to abroad besides for medical intervention.

( three ) Subsidized repast: – If repast is non provided at the workplace, many employees will travel to their abode on a regular basis for taking repast and come to workplace. While making so the employees will blow clip and energy in transposing the distance between the workplace and abode. They may non acquire even sufficient clip for taking repast comfortably at their abode. Certain classs of employees require nutrient with high Calories which they may non acquire from the nutrient prepared at their abode. In consideration of the above state of affairss, employers provide subsidised repasts to employees for upkeeping the efficiency.

( four ) Car subsidy: – In some administration full loans or partial loans for purchase of autos are provided. At certain intervals, when the auto becomes old, in some administrations there is proviso for a 2nd loan. It helps the executives to keep position, criterion and efficiency.

( V ) Subsidized purchases: -With a position to assist the employees to buy company ‘s merchandise, such as auto, icebox, telecasting etc. price reductions are given or revenue enhancement is non charged when merchandises are purchased by them. Employees feel comfy when they get company ‘s merchandise at a cheaper rate and in bend the company gets client at doorsill.

( six ) Low involvement loan: – In order to assist the employees in times of demand and keep a comfy criterion of populating some administrations grant low involvement loans for nuptials of dependents, purchase of house, consumer points etc.

( seven ) Children ‘s instruction: – When administrations are set up it is found that under normal state of affairss there is famine of good schools and even if good schools are at that place, employee ‘s kids have trouble in acquiring admittance or they are unable to acknowledge their kids at all. It becomes a affair of great concern for the employees.

( eight ) Some employees on history of this expression for transportation and posters at peculiar topographic point which the companies can non afford to make and it is besides non guaranted that even if the individual is transfered, this job will be solved. Keeping in position the demand of the state of affairs administrations are supplying assorted types of installations for the instruction of employee ‘s kids which are as follows: –

Schools are provided by the company where nominal fee is charged.

Companies give contribution to some schools and inquire for reserve in admittance of kids of

employees of the company.

Company provides scholarship to meritable kids of employees of the company.

Sometimes if good schools are non at that place in the locality, the company provides lumpsump sum

as grant to the employees enabling them to direct their kids to other topographic points.

( nine ) Banks, station offices and other recreational installations: There are administrations which are using big figure of employees. These employees require services of twenty-four hours to twenty-four hours importance like Bankss, station office, market & A ; shopping complex etc. Organisations provide edifice for Bankss, station offices on nominal rents so that the employees are non required to go a long distance to avail such services.

Employees besides require installations to transport out recreational activities. Administrations provide infrastructural installations fake nine house, resort area, bowl, auditorium, community halls where assorted recreational activities are carried out. With the proviso of such benefits the employees are able to achieve a better criterion of diving and pass active and peaceable societal life.


Q1. Explain the significance of costliness allowance in the wage paid to the employees?

Q2. How the system of payment of Dearness Allowance is chiefly classified?

Q3. Explain the other allowances given to the employees to counterbalance them?

Q4. What is fringe benefit? Enumerate the assorted types of periphery benefits given to the employees?


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