House Rent Allowance (HRA) – Common Issues
House rent allowance is one of the key components of wages paid to an employee. The object of payment of HRA is to enable an employee to meet the expenses incurred by him for hiring an accommodation at his place of work. Some frequently asked doubts about HRA are addressed below
1) Is it compulsory to pay HRA as part of wages to an employee?
No. It is not compulsory for an employer to pay certain sum as HRA as part of the wages unless there is a statute (law) in that state making payment of HRA at certain minimum rate as compulsory.
2) Is there any statute making payment of HRA as compulsory?
Certain states like Maharashtra have enacted law namely the Maharashtra Workmen’s Minimum House Rent Allowance Act 1983 where by an employer covered under the Act, is required to provide HRA at minimum rate to workmen. Therefore one needs to check with regard to one’s state about the existence of any such law.
3) Is there any specified formula in fixing the quantum of HRA in the industry?
Except where there is a statutory provision in states like Maharashtra, there is no prescribed formula for fixing the quantum of HRA.
4) Whether HRA can be uniform for all places?
No.HRA cannot be uniform for all places in order to be realistic. For example, a company fixes HRA at Rs.1500/- for an employee working in a small city. However the same amount cannot be said to be realistic for an employee working at a lage city, where he is compelled to hire accommodation at far higher rates.
5) In the absence of any fixed formula or rule, what are the factors that are relevant to fix the quantum of HRA?
The following are the factors that can be considered as relevant.
i) HRA shall be linked to the place of work/posting of an employee but not to the place of the residence of his family. For example an employee is working at Nasik but his family is staying at Mumbai for education of his children. He is eligible for HRA at the rates fixed for Nasik town but not at the rate fixed for Mumbai.
ii) It shall bear reasonable relationship to the rental values prevailing at his place of work.
iii) It shall be commensurate with the status, roles and levels of the employees. For example the HRA drawn by a junior officer and a Senior Manger cannot be the same. The company needs to have a pragmatic formula, having regard to the size of accommodation which it considers as adequate for each class of employee.
6) What are the sources that can be looked for guidance in deciding the quantum of HRA?
On can look for the following sources
i) The statute, if any prevailing in any state providing for payment of HRA
ii) The HRA paid across the industry or the companies of similar nature and size, located in the same region in which the company in question is located, can also be adopted as a norm.
7) Is HRA and house rent reimbursement the same?
NO. HRA is paid as part of salary every month as any other regular allowance like dearness allowance. Whereas in the scheme of house rent reimbursement, no HRA is paid and an employee is required to produce rent receipt or some evidence, prescribed by the company for having incurred the expenses towards the rent of his accommodation upon which the company reimburses him the said amount.
8) Is HRA also payable as part of wages when employee is also claiming reimbursement of house rent?
No. The employee is either eligible for HRA or for house rent reimbursement.
9) Is HRA also to be deducted when an employee is on leave without pay?
Yes. When HRA is paid as part of salary, it is to be deducted when an employee is on leave without pay.
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This is a Guest post by Sai kumar, an HR professional with three decades of experience in the field of labour laws and industrial relations in a public sector as well as in a reputed labour law firms.
Sai Kumar has been involved extensively in research on labour law issues and case-law on subjects such as the Industrial Disputes Act, the Standing Orders Act, the Factories Act, the Contract Labour Act, the P.F Act, the ESI Act and the Gratuity Act etc.
The opinions expressed in the various blog posts on this site are those of the respective authors and are not necessarily endorsed by Talentmoon Human Capital Solutions LLP ( ” Talentmoon”) or its Partners. The guest posts on the various Labour laws and acts are only intended to present these laws in simplified language and they are not to be construed as legal interpretations or legal advice. The replies to various comments & queries on these blogs are based on the understanding of these Acts and laws, by the guest Author and the reader is advised to use his discretion and take appropriate legal opinion before acting on these posts & comments.
Talentmoon is not a law firm and none of its partners are legal practioners
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for interstate migrant workers what would be the minimum wage? the one set by the state he is recruited in or the one set by the state he is employed in.Again, if a contractor engages less than 5 migrant workers in different establishments and the establishment has only those many migrant workmen what would be the principal employers liability with respect to rights of the migrant workmen as the establishment having less than 5 migrant workmen would not be required to get his establishment registered
@Nidhi – Please rephrase & clarify your query.
SIR,I WAS GIVEN IN OFFER LETTER HRA 3000 PER MONTH DURING JOINING. SINCE 1 YEAR I USED TO GET THAT BUT NOW MY COMPANY IS SAYING THAT I WILL NOT GET THAT SINCE I STAY WITH MY PARENTS, IS IT LEGAL?????
Reply from the Author-@Amritendu- It all depends up on the company’s policy and terms of contract of service which you have agreed to at the time of joining.
If the terms of contract or company’s policy has laid down any condition that you will lose your entitlement to HRA, if you stay with your parents,you may incur the debar clause as per the policy.The object of HRA is to reimburse expenses incurred by an employee in paying rent for his accommodation.It appears that the company’s policy is that it cannot visualize a landlord-tent relationship when an employee and his parents live under the same roof.However some States like Maharastra enacted Acts like Minimum House Rent Allowance Act where by an employer is required to pay a minimum house rent allowance to the employees. But the house rent admissible under such Acts is meager. Any how, check whether your State has any such law, making HRA compulsory. Apart from this, there is no statutory provision to govern payment of HRA
Note : please note that the views given in this forum are clarifications meant for reference and guidance of the readers to explore further on the issue and take call on the issue. These should not be construed as legal opinion or advice.
We use to pay annual performance incentive to our employees are we liable to pay ESIC cont. on it?
Reply from the Author – In my view, annual performance incentive cannot count for ESI contribution as it is paid once in a year and does not fall within the purview of wages.”
Note : please note that the views given in this forum are clarifications meant for reference and guidance of the readers to explore further on the issue and take call on the issue
in few factories there is 5 days of working in a week but as per The Factory Act 48 Hrs in a week how they will meet this req.
Will they extend daily working hrs. if yes then what ground?
Dear Ravindra Kumar Dubey
In a week 48 hours has to be worked and it should not extend 9 hours working per day, hence only 45 hours can be worked maximum for 5 days.
Reply from the author @ Ravindra Kumar Dubey – Yes, the employer can can fix daily working hours at maximum 9 hours per day for five day working schedule in a week
please note that the views given in this forum are clarifications meant for reference and guidance of the readers to explore further on the issue and take call on the issue