MNC companies deducting gratuity on a monthly basis not a legal practice or at par with Payment of Gratuity Act, 1972 - CiteHR
Teamgrouphr
Placement Consultancy
Globaloverseas144
Soical Compliance Auditing
TIKARAM CHAUDHARY
Gratuity Fund Formation Consultant
Sanju_sannir
Services
Malikjs
Gm (hr)
Dasp06
Hrm, Ir, Labour Laws
Anuj Trivedi
Labour Law Consultant
Network
Consultant
AS
Service
Swati.jain0104
Executive - Hr
+1 Other

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I am new to this cite and got so many positive points in this regard that this cite is especially for HR Buddies & really helpful. I also have one query related to Gratuity concept therefore want to get the correct resolution on Gratuity if it should be a part of CTC or not because I have seen so many MNC companies deducting gratuity on a monthly basis which I really think not a legal practice or at par with Payment of Gratuity Act, 1972 as it a kind of benefit which the company provides to their employees after 5 years of their contributory services to that organisation or post retirement, permanent disablement due to an accident & therefore I believe there is no point in deducting it from employee's salary monthly.

Kindly resolve this query by giving your valuable inputs on same.

dear anu
this CTC concept has come very recently and now compoanies are including
the cost of 2 tea provided to you during working hours.basically there is now law
which defines CTC. i personnaly opposes concept of gratuity to be included in ctc,
if some one resigned after 2 years than what is use of that gratuity.
tks
j s malik

Dear Anu,
CTC is the Cost to company and denotes the total cost incurred by the company for employing a person. Since Gratutiy if the fixed contribution from the company's side, hence is shown as s component of CTC.
Swati

dear swati
how gratuity is fixed cobtribution ? it varies as basic varies.i would like to ask what will happen if someone leaves after two years ,will u pay gratuity to him?
if you pay him-than it is not gratuity because gratuity is paid after five years of service.if you donot pay him than what is the use of putting this amount in ctc head.
j s malik

Dear Ms. Swati/Mr. Malik

Thanks a lot for your earliest response but I have spoken to my seniors here in my company to exclude it from CTC as considering gratuity a pat of CTC creates confusions like:-
  • what would happen to that amount which is deducting from employees's salary monthly if he/she resigns before 5 years? Whether the employee will get the amount which was supposed to be paid to him as part of CTC)
  • What will happen to the fund contributed to LIC (or any other Group Gratuity Scheme) in case of employee leaving before 5 years? Whether the agency will pay company / employee?
  • CTC concept is per annum based concept. Whether we are paying gratuity every year or every month? If paying every year or every month then why can not claim that amount?
Even I have mailed the links & an article clarifing this doubt to them but they said tht this is a HR practice hence can not be changed. So want to ask if they r corect becoz i do not think it is a hr practice but a legal practice under the gratuity act,1972 & if not followed a punishable offence. Am I making sense?? May I do anything in this regard!!!

Waiting for ur reply! Please do me a favour!!

Thanks & Regards
Anu

Companies do work on the concept of CTC but in the appointment letter gross salary (basic+ all allowances) is shown and reimbursements alongwith other statutory provisions reserved for the employee are mentioned as annexure if disclosed on paper. This concept of CTC is for accounting & HR budgeting purposes. this is also to make employee realise that company is spending/ making provision for this amount when they hire any employee. You can say the company is showing transparency in complying the statutory costs.
Dear
But our company is mentioning gratuity component on papers as well. Gratuity is something which cannot be withdrawn before 5 years then where comes the point of deducting it since joining of an employee. My query is if I can do any thing in this case. I think that company is making fool of their employees by doing so. It is totally illegitimate.
Please suggest me If I can do anything in this.
Thanks & Regards
Anu

Dear Anu,
Ethically it is wrong to include Gratuity as a part of CTC. Gratuity should be seen as one of the retention factors, though nobody cares!

However, it will make more sense to make it as a part of someone's CTC once he/she completes 5 years of service, because then it will actually become payable.

To your doubt # 1: The employee in question will loose this amount
To your doubt # 2: LIC should refund or adjust such amount in the next payable premium to them. For this the employer has to make a request or it should have been a part of the agreement between LIC and the Company.
To your doubt # 3: Gratuity can only be paid in one go, not in instalments.
To your doubt # 4: What can you do? Hmm... nothing as such if your management is adament. So when you cant change them, change yourself. At the time of salary negotiation ask the candidate about their CTC including Gratuity amount and then offer a package including the gratuity amount that you would 'pay'. This will nullify the impact and you will be contended that the person you are hiring is not cheated.

Good luck.
Prashant


Dear Anu,
Generally companies are adding Gratuity Amount to the components of Annual CTC. Calculation of yearly gratuity amount is also different based on various concepts.
In my view, as gratuity is payable after completition of five years, Gratuity premium paid to LIC on account of Employee may be shown as Annual CTC component. But it can't be part of gross salary. It depend upon employer to add CTC components if any expense is being done on account of it.
Employer cant deduct gratuity amount from Employee salary. It is unauthorised deduction. Employee can claim it under Payment of Wages Act, by simple application to competant authority of Labour Dept.
Regards,

dear anuj
most of the companies does not include gratuity in CTC,onlyfrom last 7-8 years this concept of ctc has come up.
see whatever premium we are paying to LIC is actually not premium and it should not cost to employee.it is a fund created by company and LIC pay intrest on it to company.whatever fund u use in the form of payment of gratuity to emplyeeis debted
from this fund rest is balance in company account.
tks
j s malik


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