Allowance Details

Allowances come in different forms, and each is unique to the company. Some companies regularly give allowances to their employees, and others don't come as often. Regular allowance amounts are indicated in the employment agreement. Companies revise these amounts according to the cost of living in a particular state or country, for example.

Companies' allowances are based upon the expenses that the employee is to incur in doing company work. In some instances, companies give such allowances to workers before expenditures are made, and yet in others, employees receive a reimbursement. On occasions where the company reimburses, they would demand proof of expenditure from the employee.

Allowances may have a positive impact on the performance of workers. They can reduce work stress, create pathways for creativity, inventions, and innovations, and reduce employee turnover.

Real-World Example of an Allowance

Details of allowances are contained in the company's finance manual. The United Nations (UN) has a Finance Manual that indicates the allowances that they offer to their workers.

The United Nations Finance Manual includes the following allowances:

  • Assignment grant;
  • Initial shipment if you are going to work in another country;
  • Travel allowance;
  • Organization contribution to medical insurance;
  • Hardship allowance;
  • Special operations living allowance;
  • Daily subsistence allowance;
  • Special allowance to higher posts; and
  • Others

The UN's allowances to its employees provide a clear picture of what any company would be looking for when paying allowances.

Types of Allowances

There are several types of allowances that companies give to their employees. For purposes of clarity, the major types are highlighted below:

  • Housing Allowance: a specific amount of money that a company allocates to its employees to cater to their housing expenses. The company typically pays this allowance monthly.
  • Overtime Allowance: A monetary compensation that the company gives to an employee for the services they provide to it outside their official working hours. The overtime allowance amount is computed based on the extra time the employee works for the company.
  • Meal allowance: Covers the cost of meals that an employee eats. The worker gets breakfast, lunch, and dinner in most cases.
  • Medical Allowance: Total amount of money that the company pays to the worker to cover their medical expenses. The medical allowance covers the employee and their immediate family's health needs.
  • Travel allowance: When the company assigns an employee work that requires moving to another destination, it pays for travel expenses. This amount covers transportation, meals, accommodations, etc.
  • Subsistence Allowance: Money that a company gives a worker in advance as they wait for your first payment. It caters to the expenses that they would incur in the process of performing their job.
  • Personal allowance: Total amount of income an employee gets from the company that is free of taxation.

Some of these allowances are fully taxable, and yet others are partially taxable. Overtime allowance, for example, is fully taxed, yet a housing allowance is partially taxed.