When an employee is placed under suspension till completion of enquiry, would like to know how to maintain the following HR records in compliance with the labour laws:
Attendance: How to mark the attendance of a suspended employee since he is not permitted to work? If we mark him as ‘absent’, it will be treated as a full day’s loss of pay whereas we are paying a ‘Subsistence Allowance’ to the employee.
Payroll: How do we pay out the Subsistence allowance @ 50% of the wages during the suspension period? Do we need to create a separate pay head ‘Subsistence allowance’ or we create a formula @ 50% of all wage components?
Statutory contributions: Will Subsistence Allowance attract P.F, ESI, PT and Income tax?
One way of looking at it is “The suspended employee may not find guilty and maybe re-instated. Hence the employee continues to remain a member of the Provident Fund, and the employer-employee relationship is not extinguished on suspension”
The other way is “During the suspension period the concerned workers are not on duty and the employer-employee relationship is suspended”
Another perspective is “Subsistence allowances paid to the suspended employees do not constitute wages. It is not earned. So no deductions.”
However it is a complicated affair and hundreds of disputes were reported, many judgments came and many are still on.
Here are a few opinions (please do not consider this as legal advice) based on available information
Model standing order is mission-critical. Enquiry, subsistence allowance, disciplinary action, etc. shall be following the orders.
If the Suspension is not awarded as punishment and is for pending enquiry, % of wages shall be payable to an employee as Subsistence allowance.
As the employee is not working, attendance shall be marked as ‘Absent’ only
Employer has to deduct ESI, PT, and IT and continue based on the subsistence allowance.
No PF deduction during the pending enquiry period as no wage is earned
Make sure that an undertaking is taken from the employee for payment of substance allowance, that he/she will not engage in another job during the period, consent to continue all statutory deductions, etc.
Once the enquiry is through and punishment is awarded (if not a termination) and the decision is to re-instate with back wages, then the EPF, ESI, PT, IT, etc. require re-computation. i.e % against (actual wage - subsistence allowance)
If the decision is to re-instate without back wages, then start all deductions from the effective date.
If the decision is to terminate the employee, then this will lead to the full and final settlement
Ideally, the organization can not pay salary, issue payslip, allow employees to access ESS, etc., during suspension pending enquiry.
Hope @Bhuvana_Anand could bring more light into the legal aspects of suspension pending enquiry, subsistence allowance, and deductions.
How do we handle attendance during suspension pending enquiry and subsistence allowance in actual payroll? I believe expert fellows like @amiths@Chethanbn could offer practical guidelines.