Isnt it illegitimate on the part of the Employer to mention a gratuity component in the CTC until the employee completes 5 years?

Especially since
1. The employee is not eligible for this component until he completes 5 years so why deduct this from his CTC for the first 5 years?

2. He is not even eligible under the PGA 1972 if his Basic + DA are above Rs. 10000, yet many companies still include this in his/her CTC. Isn't this a very common scenario and a cause of confusion at the time of employee exit?

What happens to the money that is deducted from the employees CTC year after year, should he leave short of 5 years.

I see many responses here just stating that PGA is not applicable until 5 years. But that is not the question being raised here. No one is questioning PGA 1972. Please stay focused on this. What is being questioned is what happens to the amount under the following circumstance.

[CASE 1] Employee leaves in 4 years. His/her CTC included Gratuity component in the Annual Appraisal for last 3 years, his/her Basic +DA was from the start well above Rs. 10000 and yet the company cited 'as per PGA 1972' against the Gratuity component despite the above. The company made the deduction from employees for the last 3 years under the guise of it being retained towards accrued gratuity despite not being applicable.

Now that the employee is leaving and demands payment of this through an Ex-Gratia Payment. I understand that this is the general practice followed my many honest companies to revert the amount via a Ex Gratia payment?

From India, Pune
you mean to say if employees leaves with in five years he can ask his gratuity payment made from his CTC?

Thanks to CITEHR, even my company used to mention gratuity component in CTC and I was also a victim to it, but after forwarding the previous link of CITEHR on the gratuity issue to the director HR and subsequent discussion, they have agreed to remove it from CTC. If it is deducted you have the right to demand it back while leaving prior to completion of 5 years.
From India, Mumbai
Dear Members,
As the preparation of CTC of any employee is being made by HR personnels only, it is the responsibility of the HR professionals to not to misguide the management by including gratuity component in CTC. Therefore it is the prime responsibility of the management to consider the case and prepare CTC without gratuity component as the employee is not eligible before five years.
In my view, as per the Payment of Grauity Act the gratuity fund is to be maintained with LIC and from the first year itself the share of grauity on behalf of employee is to be paid to LIC and the management feels that it the cost involved as part of CTC. But they should not treat like this.
M Srinivas
Asst Manager - HR
Ramky Group of Companies

From India, Hyderabad
Dear Sir,
What about those employees who leave the Company within 3 years and still gratuity is a part of their CTC, aren't they also eligible to get the money because it's a part of their CTC ? Please reply.
Thanks and regards,

From India, Mumbai
if gratuity was a part of your CTC which is actually and Annual Pay Package and you have not completed 5 years than this is a kind of a minor fraud for the reasons cited below.

1. You have not completed 5 years and yet the company is "deducting" funds from your annual pay package (CTC) towards this component by terming it as "Gratuity" in contravention of the Payment of Gratuity Act 1972
2. You have not physically received this amount in your salary/annual payment and this component has been retained by the management.
3. Gratuity is a statutory requirement necessitated by PGA 1972 and is termed as a "Terminal Benefit". As such this should have no bearing on your Annual Salary during the course of your employment..
4. Most of all; Until the completion of 5 years (of the employee) the company does not have any statutory adherance requirement of Gratuity, and hence mentioning this in your CTC before the 5 year period should be termed as illegitimate.

Since the amount has been deducted (not paid to you) annually from the CTC, should you leave before the completion of 5 years you should be able to demand this back as an Ex Gratia Payment.

The company tends to include all costs that it incurs on the employee in the CTC. However during the first 5 years, there is no cost that the company will incur due to the PGA 1972. my suggestion therefore to HR Managers and heads is to keep Gratuity out of the CTC for the first 5 years. In the fifth year you could include the component using the following calculation so as to cover the Cost to the company

Gratuity = Current basic X 15 X 5 / 26

wherein 5 is the number of years worked

In the subsequent years the formula can be returned to the one recomended in the PGA 1972

From India, Pune
But if the company gives you the offer letter with gratuity deductions from the CTC. How should we negotiate?
From India, Madras
Need to understand how would compnay make the provision for payment of gratuity in case any employee completes 5 years of service.
Suppose company is not including gratuity for first 5 years in his / her CTC and 6th year onwards once gratuity is made part of CTC; what would be the formula for calculation on monthly basis.
Looking forward my HR friends to answer on such an interesting topic. Special thanks to employeeX for bringingup such an issue.
R K Pandey

From India, Lucknow
It is a wrong impression that gratuity is payable only if Basic+D.A.
is<Rs.10000/-.In fact The Act is amended long ago and gratuity
is payable to all irrespective of post or salary,provided that other
conditions of eligibility are satisfied.Payment of gratuity being contingent
liability,there is nothing wrong if that is considered as C.T.C.

From India, Pune
Dear All,
First of all there is no ceiling that gratuity is limited to Basic + DA Rs. 10000/-. It is to be paid to all the employees irrespective of any basic+Da ceiling. However PGA say the maximum of gratuity that can be paid to an individual is Rs. 350000/-.
Regarding binging in gratuity in CTC, normally it is not reflected in the App Orders that are issued by the company. All the cost incurred by the company by employing the person comes into CTC not necessarily only Gratuity. Since gross payment and other statutory deductions are only reflected as CTC in AO, one has no right to claim the gratuity if he / she resigns before 4yrs 8 months.
Hope everyone would agree with this.

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