Placement Consultancy
Soical Compliance Auditing
Gm (hr)
Anuj Trivedi
Hr & Admin
Hrm, Ir, Labour Laws
Executive - Hr
Service Tax And Service Tax
Hr Generalist
Payroll Management And Time Office Management
Pvt Service
Payrolling, Er
+6 Others

Thread Started by #Anupatiyal

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.
1st May 2009 From India, Delhi
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.
j s malik
1st May 2009 From India, Delhi
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.
1st May 2009 From India, Bangalore
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
1st May 2009 From India, Delhi
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
1st May 2009 From India, Delhi
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.
1st May 2009 From India, Delhi
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
1st May 2009 From India, Delhi
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.

1st May 2009 From India, Delhi
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.
1st May 2009 From India, Lucknow
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 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.
j s malik
1st May 2009 From India, Delhi
Hi Friends,
Actually their is no law regarding to show the gratuity in CTC. But Many co. show that in CTC because if employees stay with the company for more than five yrs then Company will liable to pay the gratuity.
As per my opinion it is right.
1st May 2009 From India, Mumbai
Dear Anu,
One thing keep in mind that gratuity is a statutory right of employee whoever completed 5 years in the same organisation.
It is employer liability to provide this cost to employee without including CTC.
You can't say gratuity is a part of CTC.
Just like as amendement of factory licence,you have to pay certain fee to the Govt ,the CTC also a legal requirements of each organisation.
You can see more on our website::: Global Overseas - Home :: Compliance Audit, ISO certification, BFSI Audit, Export, Jem, Jewellery, chemical Industry.
1st May 2009 From India, Delhi
Dear All,
Earlier also there was a lot of discussions and postings on gratuity as a part of CTC or not. In this regard I too had posted views that CTC should not be a part of CTC and HR professionals of respective companies shold guide the management to not to include gratuity as a part of CTC. The point is very clear:
CTC means cost to company and whatever the cost incurred towards respective employee is to be include but it should be payable to the employee. If any employee leaves the company before five years then it is not payable and should not be part of CTC.
M Srinivas
Asst Manager - HR
Hyderabad Waste Management Project
Ramky Group of Companies

1st May 2009 From India, Hyderabad
Dear Anu,
Gratuity is not an assured payment (before 5 years), also it is a provision made by company in Books.It is statutory contribution.
Company may choose to add any benefit under CTC. But, as HR professionals it is our duty to explain to the candidate / emmployee.
These are my two cents.
Sachin Khadilkar
2nd May 2009 From India, Mumbai
Hi Anu,
I have gone through the whole discussions and found interesting. You are very right that gratuity is not a part of CTC but now a days MNCs are making part of CTC and deducting their contribution on monthly basis. In some companies, they are making payment in the F&F if an employee is leaving less than a 5 years. Top of that companies are also giving them tax rebate also.
I would tell you one fact that employee gets more amount on maturity (after 5 years) than compare to their monthly contribution. If you add monthly amount then you will find the difference. Because company has to pay as per gratuity formula.
2nd May 2009 From India, Delhi
Hi Anu,
One more point that by doing this company has very litle liability because they are already deducting contribution from employee and making adjustments in the books and paying basically it's a single payment not a double.
2nd May 2009 From India, Delhi
My understanding, if Gratuity is taken into consideration when calculating the CTC of an employee.
At the time of resignation:
Prior to 5 years : we paid back all amount deducted from the CTC of employee as Gratuity ( considering the same as taxable ) with final settlement of the account,
After 5 years : if employee resigns after 5 years, calculate the gratuity as provided by the formula and pay.
2nd May 2009 From India, Mumbai
hey Anu don't deviate in a number of advices it my make you confuse, I hv read Employee Gratuity Act of India and it is paid to employees for their loyalty to company if the person have worked 5 years or more than that, 2 years back maximum amount of Gratuity was not more than 3 lakhs...whether calculation goes more that follow the advice of Mr. Malik only he is guiding you right...
2nd May 2009 From India, Delhi
Hi All,
Greetings for the day,
Iam new to this cite.I have one query related to HR Shared Services.What is HR Shared services.:-x Please give your valuable suggesstions and solve my query.
Thanks & Regards
2nd May 2009 From India, Madras
So folks! I don't know about Anu, but I have become more confused :?:

CTC is cost to company. Each company has its own way of arriving at a CTC. Some companies add benefits, incentives, extra allowances, even value of transportation as a part of TCTC ( Total Cost To Company)
This is done to enhance the look of CTC to attract employees.

"CTC is different from gross salary. Salary is what you get in hand..... and CTC is a bargaining tool for both employee and the employer - Is it not correct?"

Gratuity is something that needs to paid by the company to the employee eventually. After 5 years. Agreed.
How is it unethical then to put it in cost to company? After all it is cost to company. I mean as long as the 'pay break up statement' very clearly states that gratuity would not be deducted from the promised gross amount; Is it not all right?

Then the PF value that is the employer's contribution should have the same treatment on papers; right? Then why do many companies include Company contribution of PF in their offer letters?

Anu, I am sorry if I am confusing the matter further. :confused:

Could any body please provide some literature on this?

2nd May 2009 From India, Bangalore
Dear Anu,
Gratuity is considered as a part of CTC. Because every company have Yrl budgeting and planning. They take all expenses occured for each and every employment. Surplus in Budgeting is consider as saveing. If anyone resign before 5 Yrs.. that goes to Management Account and if anyone is eligible for Gratuity will goes in Employee Account.. Even Employer are Involving all these component in CTC to Increase the CTC amount so that Employee get Attraction and ACCEPT offers. Hope it is Clear that why Employer always consider Gratuity in CTC.
2nd May 2009 From India, Lucknow
Dear All ,
CTC indicates the cost to be incurred by the company inengaging an employee and it does not indicate the gross salary to be received by the employee . So many indirect benefits are also converted in to rupee terms for calculating CTC . Hence Gratuity should also be the part of CTC . Whether the employee stays for 5 years or not, the comapny deposit the amount against gratuity i.e. the organisation incurs that cost irrespective of employee's tenure . So it is considered as a part of CTC but not a part of Gross salary . So if you are not following the concept of CTC , than do not worry .
In CTC concept , the canteen subsidy is also a part of CTC whether the employee takes food in the canteen or not . So also the case of mediclaim premium . The organisation takes the premium as a part of CTC whether the employee fals sick or not ?
I hope the things are clear .
4th May 2009
Dear Anu,

1. The term CTC used by HR Executives do not have any legal sanctity of sanction. It is one of the Corporate cliche to bait the young talents by inflating the pay figures as a package by incorporating all kinds of retirement benefits, allowences as salary.

2. As you have well pointed out, Grauity being a statutory payment by the Gratuity Act,1972 is a statutory obligation of the employer to make payment as per the provisions of the Act, without collecting any contribution form the employee. In case of collection of any contribution form employer, it is illegal and i am willing to take up the case on behalf of the employee.

3. LIC Group Grauity Scheme is only to reduce the burden of the employer by pooling the risk and employee who had not completed 5 years of continuous service, do not have any claim over the employer regarding the contribution made by the employer since it works on principle of Insurance.

I appreciate the persistence of Anu and the legal acumen.
4th May 2009 From India, Madras
Dear Mr. Irudayam,
I am in a Telecom company, as an Asst Manager, Retail Sales! my employer are also practicing the SAME THING, i.e. they are illegally deducting my Gratuity amount from my monthly salary: according to my CTC: Gratuity: 3640, and they are deducting 336 rs per month from my annual payout, will you please help me out to resolve this ongoing paradox. I am ready to consult with you professionally with all norms!
if possible pls reply to my email:
9th September 2009 From India, Calcutta
Hi malik ji
Your response is neat, but my question is , since the Gratuity is also the statutory benefit, if suppose CTC forms part of CTC , then still it is possible to trag the employer to the court , citing the reason they are cheating the employees who have not rendered 5 years of service. Your views will be more useful

17th September 2009 From India, Madras
Is it fair if a company roles out a CTC offer with the Gratuity component included as a part of the package and upon join revokes this Gratuity amount and lowers the CTC Amount by taking out this component??
If I have accepted the offer along with the gratuity amount included, should'nt I be compensated with this gratuity amount component under other heads as the company has revoked the gratuity clause after acceptance of my offer???
Kindly suggest ways to negotiate with my employer.
27th April 2010 From India, Mumbai
The simple answer of this question is, put the gratuity fund aside and invests through multiple investment plan. Don’t go by LIC and other Gratuity fund scheme. This way you can always pay the amount been deducted from the salaries to the outgoing employees under Ex-Gratia or an incentive form. Yes the CTC is very common term is in existence now days.
27th April 2010 From India, Delhi
Dear All,

Gratuity eligibility is after 5 years of continuous service. But the matter of fact is that many good BIG organization are deducting Gratuity & even superannuation as a component in the CTC from an employee.

I have recently interview people for GM post & got to know that almost 45% candidates were having gratuity as a part of their CTC. Even candidates were from HCL Tech also. Normally the deduction made is 4.5% of Basic.

I myself couldn't understand the logic behind this because if u are deducting some specific percentage from salary, then how can an employer calculate the gratuity amount w.r.t the gratuity formula after an employee serves an organization for 5 years.

The question is also that what happens if an employee leaves before 5 years.

Request those members who are already following this practice in their cmpany to clarify this doubt.

ANU: would u plz ask the same question to ur seniors that do they pay the deducted amount to an employees if he/she leaves before the completion of 5 years & also is the contribution made by both employee & employer or is it one-sided?

Warm Regards
Sumiksha Suri
27th April 2010
Dear Sumiksha,

Greetings for the day ahead!!!!

I agree with you that many big companies show gratuity, superannuation, employers contribution to PF etc. as part of the CTC. However, i disagree with this being a wrong practice.

Recruitment is a growth activity for the companies. When you recruit an employee, you expect her/him to stay in the organization and become instrumental in the development of the company. This concept however has gone for a toss , thanks to the neo capitalistic rule of "free movement of labours". At the same time , recruitment is also a cost center. How do you expect companies to make up for the cost incurred ( keeping again in mind the neo capitalistic rule of companies being a purely profit making body) !

All the overheads including gratuity can be enjoyed if you stay in the company for a definite period of time. However, employees leave in search of better opportunities and pay hikes. The practice of including such overheads in the CTC; on the one hand disincentivises the early exit of employees and on the other hand is an incentive for the people who stays with the company.

Team GroupHR
27th April 2010 From India, Delhi
But Dear Team GroupHR it is our own money , if the employee negotiates on CTC then in that case it is loss for him.
The employee does not charge the company for bearing brunts of clients on behalf of the Co. / shouting from manager, lot of problem,,,which will take time to be listed.
Personally i feel it is just unethical to retain gratuity if the employee does not complete five years i the co.
30th April 2010 From India, Mumbai
Please find attached reference check formats
as per rule there should be professional reference checks (one current employer and other previous employer and two should be social reference. I am herby attaching the reference checks format hope it will be very useful for all hrians.
sanjay pandey
gm--hr and admin
billets elektro werke ltd.
8th August 2010 From India, Vapi
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit of his exit from the company.
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal benefit. The cost is to be born by the Company and not an employee, hence Gratuity cannot be a part of CTC.
To understand this part, let us take an Example,
Mr. A Joins the Organization with a Basic Pay of Rs. 26,000/- per month and monthly CTC of 50,000/-. Gratuity Components is not a part of CTC. Assuming that the Expected Salary Increase in Basic Salary is assumed to be 10% p.a.
Now Gratuity Payments for the next 5 years will be:-
On Completion of 1 Yr - (15/26)* 28,600*1 = 16,500/-
On Completion of 2 Yrs - (15/26)*31,460*2 = 36,300/-
On Completion of 3 Yrs - (15/26)*34,606*3 = 59,895/-
On Completion of 4 Yrs - (15/26)*38,067*4 = 87,847/-
On Completion of 5 Yrs - (15/26)*41,873*5 = 1,20,788/-
Now for making the payment of gratuity, Company has 2 options :
(i) **“Pay as you go option” **- Where the company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when Mr. A leaves the organization, company pay gratuity from their **resources** and get the tax benefit for the gratuity paid.
(ii) **“Funding Option”** - In this option, the Company decides to Setup an Approved Gratuity Trust. The Investment of the Company is either "Self Managed" or “ Managed by Insurance Company”. Company contribute the annual contribution in this Gratuity Trust and get the Tax Benefits. In this case, when Mr. A will leave the company, gratuity will be to Mr. A from the Gratuity Trust.
In both above cases, Gratuity is paid by the Employer from his** own resource.**
In case you need more clarification in the above matter then you may visit my blog at (
22nd February 2019 From India, Delhi
Reply (Add What You Know) Start New Discussion

Cite.Co - is a repository of information created by your industry peers and experienced seniors. Register Here and help by adding your inputs to this topic/query page.
Prime Sponsor: TALENTEDGE - Certification Courses for career growth from top institutes like IIM / XLRI direct to device (online digital learning)

About Us Advertise Contact Us
Privacy Policy Disclaimer Terms Of Service

All rights reserved @ 2017 Cite.Co™