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Hi Ajay,
It is not advisable to include gratuity payment in CTC. It is always uncertain that the employee will receive gratuity or not as he needs to serve 5 years in an orgnisation to become eligible for grauity. Further, the grauity calculation of an employee depends upon how many years he served in the organisation. You cannot presume how many years an employee will work in your company. So it is better not to include the payment of grauity in CTC while giving offer letter. It should be shown in some miscellaneous head.
as regards your second query, in no case the employee can claim for gratuity without completing 5 years of service, which is statutory.
srihari rao


CTC means Cost to Company or how much cost is being incurred by the company towards the individual employee. Gratuity is also a cost that is incurred by the company from Day 1, irrespective of whether the employee is going to stay in the company for 5 years or not and hence has to be shown in the CTC workings. The company has to set aside 4.8% of the Basic Salary of the individual towards Gratuity.

You need not specifically mention in the CTC workings that Gratuity would be paid as per the act - it is understood.

Generally when an employee is selected and the salary negotiated, the other benefits that are applicable to the employee like Bonus, Leave Salary, etc are discussed and he is also told that Gratuity calculation would start from the first month itself. So there is no way that he can claim Gratuity if he leaves before completion of 5 years.

The problem is that CTC is loosely mentioned in place of salary. CTC is what the company is bothered about while calculating the Wages & Salaries Cost and the employee should only be bothered about the Gross Salary and Benefits he gets.



Vasudev is cent percent correct on all counts. CTC may, and normally does, include all expenditure that the employer incurs on behalf of the employee. Though different companies include different elements in calculation of CTC, and though you will never find it clearly defined anywhere, CTC normally includes elements that are paid to the employee by way of salary and various allowances, and ALSO other expenses the employer incurs on behalf of the employ to comply with various legal provisions. Some typical examples are: Employer's contribution towards Provident Fund, Gratuity, Leave Encashment (unfair, but many companies do it), Mediclaim premium, Group Insurance premium, estimated annual bonus etc.
As some members have already pointed out, many of us confuse CTC with pay and allowances, and hence feel that all the amounts mentioned in the break up of the CTC are payable to the employee directly. However, this is not the case, as already explained by many.

Hi All
Its a good discussion going.
As pointed by many that all payments mentioned in the CTC are not directly paid in cash to the employee and CTC is the cost incurred to the company in keeping the employee are correct. As per Act you cannot contract out payment of gratuity to an employee but it also do not debar you from paying over and above the minimum mentioned in the act.
But at the same time if it is mentioned in salary structure agreed upon by the employer then it becomes obligatory on the part of employer. Only the wordings put into the appointment letter would matter. SO its advisable to be very clear in framing sentences while mentioning it on the pay structure.
It would be more helpful if any body can post information or reference regarding any case law or court decision on the issue being discussed.

Since gratuity becomes due to a person subject to his completing five years continous service, therefore, a person cannot legally claim it if he separates before eligibility period, although it might have been indicated in his ctc .

Dear Friends,
Gratuity in the meance is only statutory. We have to follow the Payment of Gratuity Act. But if you want to do as per your companies rules that is inmaterial itself. As per law any person is completed his 5 years of service in particular company he will be elegible for gratuity. If you put in CTC any labour department people are asking how we can show it.?
The Formula is as under:
Basic+DAx15/26x No.of years of service (minimum5yrs.)
Further details please go through the Act. (A brief notes is attached with this)

Attached Files
File Type: doc payment_of_gratuity_336.doc (22.0 KB, 280 views)

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