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This is an interesting question, whether inclusion of gratuity in CTC would make an employer liable for payment, if an employee leaves the organisation before fulfilling the eligibility criteria under the payment of gratuity act.

I think this question needs an indepth study. In my view, if an employer has not specifically mentioned 'gratuity' as per payment of gratuity act, in the CTC, an employee can claim this as a simple contractual obligation. He may claim, that it is a part of his salary which he had negotiated and which was agreed upon at the time of his appointment. He, under the contractual obligation, has a right to leave the employment, or the contract can be terminated by the employer. In the circumstance, the employer cannot refuse to pay the gratuity amount even though he has not completed five year of service.

The position would change if the employer specifically mentions in the CTC, 'gratuity' as per payment of gratuity act.

I am open to correction.However, I feel, one can raise the above plea, and legally contest it



Dear Ajay,
If Gratuity is included in your CTC, then employer has to pay the gratuity to the resigned employee even if he leaves within 5 years.
It is specified in the appointment letter w.r.t gratuity, whether to be paid only after completion of 5 years. OR it is mentioned in salary structure
i.e CTC.
In my company Gratuity is included in CTC.It is calculated as 5% of Basic.
Nimish Joshi

As far as my knowledge is concerned, gratuity can not be part of CTC. it is not a deductable amount from CTC rather it is an additional burden on employer's part which has to pay to his employee and the time limit is of 5yrs, no exemption on.
PLz correct me if i m wrong

i would like to second the opinions of two of my collegues namely HR Singh and Santosh Kumar, both are correct
Today many companies are paying the gratuity component every year rather than at the end of five years as stipulated by the law.

Dear Ajee,
with regard to the above mentioned, it need not to be raised payment against the gratuity before five year. The component showed in the CTC is part of the Employers contribution. No employee is eligible to claim against before the specified years in the respective law. yes only in case of demised you can go ahead for a gratuity claim.
CTC is the actual employees earning out the company and the employers contribution, so portrait gratuity is not a problem but it is impossible to claim before the fifth year.

Dear Ajee
if you are including gratuity in his CTC that means you have labilities or to pay to the employees ,
As Act is also applicable only after completion of continuous 5 years , so in case of leaving before 5 years you have to pay the amount of gratuity which you have shown in his CTC .

How you put Gratuity in the appointment letter that signifies the payment terms.
Now it has become customry to show the statutory payment paid to employee as part of CTC where it is put under Appointment terms which as per me is incorrect.
If you are putting it in appointment letter than it becomes under the law of contract and employee can ask for the claim of Gratuity and even PF claims as these amount shown in Grauity coloumn are much above the stautory provision in most cases.
On safer side the stautory payment even counted under CTC, they have to be rightly worded when you are putting it in Appointment letter.

Dear All,

Let me congratulate first all of you for having a good discussion on cite HR forum.

I see this issue as an understanding issue & a company's perspective issue.

1. As everybody is aware that gratuity is payable under Payment of Gratuity Act 1972. It can be paid on the basis of certain formula after completion of 5 years of continuous service.

2. It is company's choice to include or exclude it in CTC calculations. If any organisation includes it into CTC , it is important to understand what cost to be taken. Some company's take it @ 5% of basic wages (on which PF is deducted), some take @ 8% of basic wages.

3. Another method to calculate cost of gratuity for CTC calculation, is to take actual cost incurred by employer for insuring (if insured) the benefit of gratuity (which employer pay to any insurance company every year as premium of insurance policy). This cost employer don't save even if any employee leave organisation before 5 years. This can be justified to any employee, if he claims gratuity before completing 5 years of service on the pretext of CTC basis.

4. Employer is not legally bound to pay Gratuity before completion of 5 years of continuous service. Therefore, employee can not claim it, even if it is being included in CTC.

5. At last, everything depends upon company's policy. You can pay any thing you want or negotiated. No law stops to pay you more than statuatory norms.



Dear This mailis not related to any personal comments or remarks so pls take it as a point of Discussion
Correct me if i m wrong
I think Gratuity contribution is borne by the Employer not by the Employee and that is 4.81% not 5 %, of basic,is it correct or not? pls let me have the View of the Seniors.

Dear kunal, You are very much correct. In CTC calculations, usually company’s rounded it to nearest integer. Sameer

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