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Thread Started by #kamran.husain@gmail.com

Is it ethical on the part of employer to keep gratuity in the CTC. As far as I know gratuity is only applicable after completing 5 years in the organization and can only be paid then, so is it right to have it accounted in the CTC of the employee from the first year onwards?
12th February 2011 From India, Lucknow
Dear Husain,
It depends upon the company. If they have an affiliation with any of the insurance company for Gratuity purpose, some companes indicate the same in the CTC. but it should not be shown in the CTC in general.
12th February 2011 From India, Mumbai
It is unethical but many companies resort to this practice. The employees who goes out of the company before completing 5 yrs, are the losers. It is one of the tricks of retaining employees. pon
12th February 2011 From India, Lucknow
what if the employee leaving before 5 years demands the gratuity amount to paid to him/her in some other head, since it is a part of his/her CTC which was offered during the time of appointment. My qs is will the co. be liable to pay the amount deducted towards gratuity every month if an employee leaves the organization before 5 years, even though not under gratuity but some other head.
12th February 2011 From India, Lucknow
Yes it is logical but only thing is that if an employee leaves the job before completion of 5 years he shall get that amount back during his full and final settlement.oterwise it is a unjustice to that employee.
12th February 2011 From India
Dear Kamran,

I am sorry to disagree with you as well as with all my other friends who appear to have agreed that it is unethical, etc. etc. to show gratuity as part of CTC.

If a potential candidate is shown only a lump-sum figure as the amount promised to him, I agree with you that it would be unethical not to pay the amount either on a monthly basis or at the time of leaving (even if the employee leaves before the period of 5 years).

However, if a full break-up is shown to the employee, and the rules for payment of gratuity are disclosed, there is nothing unethical about not paying the amount to an employee who quits before the qualifying period of 5 years.

The law clearly stipulates the conditions under which Gratuity is payable to an employee. If the amount is not taken into account while computing the CTC, it would mean a sudden, unintended jump in the CTC of the employee after he/she completes 5 years. Kindly remember that after completing the requisite period of 5 years, gratuity is payable for the past period, from day 1.

Grauity, by its very nature, is meant to reward service, provided it is given for a minimum period of time. This serves as a retention tool, albeit a rather weak one, and there is nothing unethical about it. Today, there are many incentive schemes, (including stock option schemes) that, once earned, are paid out in stages, provided the employee continues to remain in service for defined period of time.

I maintain that as long as all conditions for payment of a certain amount are disclosed to an employee at the initial stage, and the rules are not changed midway, there is nothing unethical in the said practice.

13th February 2011 From India, New Delhi
I agree with mr gerry 303 that is the fact of gratutity act.And Employer is required to have provisions and pay to the fund every year cannot keep with him( fund ceated with LIC)
14th February 2011 From India, Pune
I personally would not include Gratuity while calculating the CTC since this (Gratuity) is payable only after he/she completes 5 years of continuous employment with the Co. This may or may not happen.
But sometimes candidates do tend to include Gratuity in their current CTC to inflate their current CTC in order to bag a better remuneration package. In such cases it would be in order to include Grattuity as part of the CTC which is offerred to the selected candidate.
It is a matter of comparing apple to another apple.
Vasant Nair

14th February 2011 From India, Mumbai
Dear friends,
HR is always talk and worry about attrition but while talking about long service, we take a step back. Monthly remuneration is eligible only after continuing completing 26 days of work and one cannot expect full salary working partly in a month. Similarly one will qulaify for gratuity after completion of stipulated period of services as per the act. And after all CTC is cost to the Company and Company have to calculate monthly liability to an employee whether he/sh is going to continue for one year or ten years.
And it is up to the candidate to calculate the net earnings per month at the time of interview and negotiate with the employer if it is not sufficient to his / her services. So it is not the matter of ethics but this is a matter of ones ability to negotiate with the emplyer and demand better salary.
May my opnion is different, but let us debate and have more clarity.
PT Ramesan
14th February 2011 From India, Tiruppur
Dear Kamran,

1. History - Gratuity was supposed to be a gift from the employer in the initial days, but, now no more. Its a rightly earned service benefit and it serves as a social security to an employee; after his retirement, so that he can take care of his family in a respectable manner!!

2. Request you all to study the Payment of Gratuity Act, 1972!! This will solve a lot of queries!!

3. As per section 4 of the act:

"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"

So, a continuous service of 5 years is a must!!

4. Also, the idea behind the formulation of act was to provide a social security to workmen after their retirement!!

In a way, no gratuity should be payable if you are young, socially secure and believe in skipping jobs!! ;) (Just Kiddin!!)

5. Well, next time you negotiate your salary, keep the structure in your mind!! and even if Gratuity is a part of your CTC, then its your money only, which u will get after 5 years of service!!

6. I believe, calling gratuity as Retention Amount is sheer violation of the purpose of Gratuity as mentioned in the act!!

Rahul Chhabra
14th February 2011 From India, Delhi
Gerry has explained the concept of gratuity in a clear way...ctc means cost to the company...and gratuity payment for an employee is a cost to the employer, nothing wrong if the same is included in ctc....as per the gratuity act, definitely it gets payable after completing 5 years of service, employee himself is responsible for not getting the gratuity payment if service is less than the mentioned period.
14th February 2011
Hi hr_ROY The proportion of Gratuity is 4.81% of basic+DA salary whch add in CTC. supoose if BASIC+DA=20000p.m GRATUITY PROPORTION IN CTC =11520pa(BASIC+DA*4.81%)*12 plz correct me if i m wrong.
14th February 2011 From India, Delhi
Dear Gerry, Nice explanation, however Gratuity has never been a Retention Tool and will never be. Its an instrument to ensure social security after retirement!! Regards, Rahul Chhabra
14th February 2011 From India, Delhi
  • Gratuity is a cost incurred on employee. Hence it is perfectly ethical to include Gratuity in CTC sheet.
  • There are many more costs which are included in CTC and actual benefits to employee against those costs are subject to many conditions and eventualities. For Example employer is incurring cost of employer contribution to ESI but employee will get benefited only in case he falls sick and chooses to avail benefit from ESIC. Same is a case with Group Insurance Premiums.
  • In case of Gratuity even though it is payable after 5 years service, employer has to incur gratuity cost from day one by way of Group Gratuity Premium or Provision for future gratuity payments.
  • However, not all employees are aware of terms and conditions applicable to payment of gratuity. Hence employer has to be very transparent and upfront in not hiding such finer points while offering CTC.
  • CTC Sheet should always give bifurcation of all the costs included, separately mentioning which are the components payable monthly, annually and other benefits.
  • There should be specific footnote mentioning that, Gratuity is payable only after completion of five years service, at the time of seperation only.

14th February 2011 From India, Pune
I am fully agreed about showing gratuity in CTC by the companies and not paying to their employees, as unethical, if they leave before completing five years.
On should understand that gratuity is not a cost to the company but the organization is paying to its employee as gratitude to its employees, who has given a good time and their valuables to the organization.
14th February 2011 From India, New Delhi
I was told by my employer while joining that the gratuity amount would be deposited with govt authorities if I leave them before completing 5 yrs as Gratuity is included in the CTC. I will not get back the gratuity which is kept aside as gratuity if I chose to leave them before 5 yrs. This practice is unjust and unethical.
14th February 2011 From India, Lucknow
It depends on the company to show it under the CTC or not.
However if the company wants to show gratuity as part of CTC then the same should be communicated to employee at the time of issuing the offer/ appointment letter. Then the employee decides to join the company with such terms and conditions or not.
Michael Joseph
14th February 2011 From India, Bangalore
Hello All,
My employer gave me appointment letter of Ist company on 01.08.2005 after six month i.e on 01.02.2006 they transferred me in IInd company without giving any appointment letter . And after three month i.e. 01.04.2006 they transferred me in IIIrd company without giving any appoint ment letter till date I am working in IIIrd Company . In first company they paid me in cash and in IInd and IIIrd compnay they paid my salary in cheques . And all the three company are being run by family management .
Now till date i have rendered my service for more than 5 years . Whether this 5 years of service will be eligible for Gratuity purpose . Please guide me.
14th February 2011 From India, Delhi
Yes, under the circumstances stated by you, you are entitled to payment of Gratuity. Vasant Nair
15th February 2011 From India, Mumbai
Dear Parduman, You are eligible for Gratuity as the principle employer is the same!! Regards, Rahul Chhabra
15th February 2011 From India, Delhi
Having agrred with Gerry 303, I would like to add that Gratuity is admissible in less than 5 years also in the case of death of the employee, which has to be taken into account.
16th February 2011 From India, Mormugao
agree with mr gerry 303 that is the fact of gratutity act.And Employer is required to have provisions and pay to the fund every year cannot keep with him( fund ceated with LIC) Daya Anand
18th February 2011 From India, Delhi

Ingnorance of law is no excuse, now want to explain few facts regarding payment of Gratuity Act and want to reply the words stated by you in your post in view of Payment of Gratuity Act & Rules.

First of all everyone know that its a social benifit acure to an employee.

the idea of payment of Gratuity is a kind benvolane payment to him for the service rendered by an employee. this is a statute/legislation implemented by Govt for the social safty to all employees irrespetive of his designation.

Showing Gratuity in monthly CTC is totally enithical.

suppose if we offer some CTC to an prospective employee, these are his earned wages. And Gratuity is mandatory payable only after completion of continues service for a period of 5 year.

if we are deducting certian amount from the monthly like, LTA which is payable at the time of leaving of organisation.

Same as the case of Gratuity in case making part of monthly salary, if its the part of monthly CTC and dedected every month then, this should be paid to employee at the time leaving service even before completion of 5 years, becasue this he is not asking for the that benvolent fund which is as per Gratuity Act but he is asking for the deduction which was made from this earned wages.

It is upto the employer how to manage Gratuity Fund, whether take LIC or etc, but the premium paid for the Managment for Gratuity Fund should not be dedected from the wages of any employee, no such provison are given in Gratuity Act.

it's the statutory obligation of the employer to pay gratuity to such employees who has completed 5 years of service.

Moreover as per Gratuity Act the calculation of gratuity payable to done on last salary drawn then, how you can calculate the amount before 5/10/15 years on the wages from Ist month of joining.

this is not a condition for payment of certain wages, it's a obligation created by the law.

You are talking about incentive scheme for retention but these incentive scheme are as per policy of employer for as a employee retention policy, such schemes are the wish & will of employer, you can not compare such scheme with statutory enactments/legislative mandate.

some answer to your post is being given in red.

in my opinion or as per law if any employer is deducting gratuity from monthly wages then it should be remitance to employee even before the completion of 5 years. Other such amount should be deposited to Welfare Commissioner in the head of unpaid accumulation.

I have stated only the legal position, not what going in market, even this concept of CTC is no where defined, it's the wish of employer whatever he want can part as CTC.

18th February 2011
As far as we know that gratuity is only applicable after completing 5 years in the organization and can only be paid then completetion of 5 yrs of servise. So after 5 yrs approx on which salary calculate / budget the gratuity. So that generaay this can not be calculate in ctc. There r many employees living the co. before complet the 5 yrs. Those co. r calculating gd in ctc, I think to attract confuseing to new joiner.
19th February 2011 From India, Delhi
In some of the comments we are deviated from the main issue. What are the proposition of law we are not commenting on that. The main issue is whether showing the gratuity is ethical on the part of the company or not?

Three points to be kept in mind 1. Not showing CTC and paying after stipulated period 2. Showing in CTC and paying before stipulated period 3. Showing in CTC but not paying before stipulated period.

Now let us consider the first situation. If comp is not showing the gratuity in CTC and is paying after the required period the company has considered the long attachment of the employee and paid him as gratitude (what the employee has contributed towards achievement of the organization.)

In the second situation if the amount is shown and if the same has been kept in some other account than even in that case there would be no problem in paying the same what have been deducted

But if the company is deducting the same and not putting it into some other account than what the company is doing every one can under stand better as all are well qualified and there is no need to explain.

The only thing which I want to say that if the gratuity has been shown than it must be viewed as deduction.
21st February 2011 From India, New Delhi
Dear, proposition of law is very much clear, Gratuity is payable after compelextion of 5 years of services, and its mandatory, and no deduction shall be made form wages towards contribution of Gratuity or Gratuity managed fund.
company has not considered becasue of long service of company. Earlier it was the sanerio but after implementation of Act, it became a statutory benifit and in case of statutory benifit there is no choice with the employer.
But now becasue of this new concept of CTC, employer are taking advantage of the same, because CTC has not been defined in any Statute Book/or having legal definition.
21st February 2011
I was working for almost 6 years with a my firm in Mumbai for one of its MNC client. I was offered a CTC Salary WITHOUT mentioning any provision for Gratutiy in my CTC & in my Offer letter too.
Gratuity & Bonus will be applicable to you, Will it be part of salary, No such thing were mentioned in my CTC /Offer letter.
Now I had moved to new organization, Since I had completed more than 5 Years I had claim Gratuity from by previous firm. but my firm had denied me stating that we are not liable to pay you over an above CTC. Gratuity was part of your CTC only. you should consider gratuity as part of your salary only so No separate gratuity will be paid.
As per my understanding gratuity is applicable on completion of 5 years or 4 Years & 240days. it would be difficult to judge whether a employee will be completing 5 years of is continuous service at the time of joining.
I need your expertise & understanding on the same. ASAP.
Thanks & Regards
D. M. Shah.
11th January 2014 From India, Mumbai
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