What is cost-of-living allowance (COLA)?

COLA is not in the nature of an allowance intended to reimburse expenses incurred by employees in the performance of their official functions. It is not payment in consideration of the fulfillment of official duty. As defined, “cost of living” refers to “the level of prices relating to a range of everyday items” or “the cost of purchasing the goods and services which are included in an accepted standard level of consumption.” Based on this premise, COLA is a benefit intended to cover increases in the cost of living.