Dearness Allowance

By REGITH.R
2010-2012 MES College marampally

Consumer Price Index

A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households..

Dearness Allowance
It is an additional payment over & above the basic Salary for meeting the high cost of living. OR It is a payment towards the rise in cost of living, which is calulated based on cost of living index

 The dearness allowance is a part of the total compensation a person receives for having performed his or her job. D.A. is a percentage of the original salary. The percentage is reviewed and may be changed on a sixmonth cycle

General principles of fixing D.A

The extent of neutralization of rising cost. The frequency of altering the rate of D.A. The decision of various tribunals in this regard. NEUTRALIZATION OF DA It means the merging some part of this component in the basic wage/salary and adding the new DA in the pay cycle.

DA FIXATION PROCESS
Appoint committee or commission Committee analyzes CPI increase Neutralize old DA with Basic Consider 1 DA for every change of 4 points

System of payment of DA
Two system of he payment of DA are mostly used.. 1)LINKED WITH PRICE INDEX a)Flat rate. b)Graduated rate. 2)NOT LINKED WITH PRICE INDEX

1)LINKED WITH PRICE INDEX

It is the most commonly used system of payment of DA.In this system, DA automatically increases or decreases with a rise or fall of price index, i.e the real value of money

a) FLAT RATE
In this system management analyzes the impact of the price increase on the real value calculations and after discussing with union, decides a flat rate or a fixed rate(Rs 20,40.) to be paid to the workers and staff, irrespective of their pay scale. ADVANTAGE-It is very simple and gives greater relief to the workers and staff with an assurance of an additional amount they will get if there is a price increase

a)FLAT RATE cntn

DISADVANTAGE- The employees at different grades and scales have to be satisfied with the same rate to every one. b) GRADUATED RATE It provides a graduated scale of DA for different grades of employees grouped in a mutually agreed slab. A fixed DA rate is decided for different slabs and a maximum limit is also fixed.It is most popular and most convenient.

2)NOT LINKED WITH PRICE INDEX

Some of industries fix DA without following any specific formula. The management in consultation with the employees representatives, take a decision to increase some percentage for providing relief to the employees and reducing the financial burden on the organization.

IMPACT OF DA
DA, as an essential component of compensation, is linked with CPI and is highly injurious to the financial stability of the organisation. ADVANTAGE- It will increase the morale of the employees. It will some times provide much productivity to the company. Employers can make a good terms with trade unions and employees.

IMPACT OF DA
DISADVANTAGE It will affect the financial stability of the organization seriously. Chance of strikes, lay off etc

How to calculate D.A

Dearness Allowance = (Avg of AICPI for the past 12 months - 115.76)*100/115.76 ALCPI-All India Consumer Price Index Avg ALCPI BASE 2001 115.76 ALCPI OF 2010 is Jan feb mar apr may jun jul aug sep oct 172 170 170 170 172 174 178 178 179 181 Nov dec 182 185

Cntn.
175.91-115.76*100/115.76 Ans -51.966