Dearness Allowance (DA)

Dearness Allowance (DA) is a change that an employer offers to its employee's salary to help them face the inflation effects on the value of their money. It is a supplementary income that workers receive based on their salaries or wages in order to cover the cost of living. DA is mostly of the simple basic pay type and is altered in line with changes in the CPI. The purpose of the giving DA is to ensure that workers are not left behind as prices of items and services go up.

Example Of Dearness Allowance

For instance, let's take a government employee who is being paid $1,000 per month. Maybe the cost of living index will increase per year by 5% because of inflation. It has been decided that all government employees must receive a Dearness Allowance of 5%. It will, therefore, alleviate the high cost of living and reduce the magnitude of inflation. Therefore, the worker's wage would be increased by $50 which is 5% of $1,000 or $1,050 on a monthly basis. With the government giving this grant, the workers are assured that they could still purchase things and hence curbs concerns on inflation and cost of living fluctuations.