There is no contribution to gratuity. It is an amount payable by the employer (employer alone without taking any amount from the employee as deduction from his salary) when an employee leaves after serving him for a long period. Therefore, it is a reward for long service. In order to avoid confusions regarding what constitutes long service and what should be the amount payable for the long service it was decided to have a legislation and Kerala state enacted the Kerala Industrial Employees Payment of Gratuity Act, in 1970. Later on a central Act was passed in 1972, viz, the Payment of Gratuity Act, 1972.
As per the above Act the service for entitlement of gratuity is fixed as five years and as such any employee who is leaving the establishment to which the Act applies, after completing at least five years of service will be getting gratuity at the rate of 15 days salary at the time of leaving for every completed year of service. Any fraction of a year of service above six months shall be taken as a year. Therefore, if an employee is leaving after completing, say seven years, six months and one day, then he will be getting gratuity for eight years. It is to be paid by the employer alone and no amount should be taken from the employee towards it.
There a company named Robert Bosch, which is deducting 4.81% of Basic Salary towards the Gratuity. And this money is collected over a period of 5 years and then the employee can retrieve it.
Is this how it should be?
No, not at all. Gratuity amount should not be deducted from the salary. it is a payment to be made by the employer alone. It is OK, that it is a cost to company but it should not be deducted from the monthly salary. Moreover, the amount payable at the time of employee's leaving which may take place after 10 years, 20 years or even 30 years, will have to be calculated on the salary of the employee at the time of his leaving, that is, 10 years, 20 years or 30 years, as the case may be, from now. Is it possible to work out that future salary?
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