Gratuity - Employee Salary [Thread 458571] - CiteHR
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I have one query about gratuity.
Some companies are deducted gratuity amount monthly from employee salary.what happen if employee left company after two years and joined another company?
what happen if employee retired after three years working in a same company?
As per my knowledge they will not be eligible as per payment of gratuity act.Then what happen to that deducted amount for two years or three years?
Can employee get it legally or its a companies wish to give it or not?
please advice me in details I have a big confusion about this thing in gratuity
ERP HR & Payroll Consultant

Hi Parul,
As per the statute, employer need to make a provision of 4.81% amount on basic pay. If an employee resigns and leave the organisation before the stipulated period i.e. 4 years 240 days then he will not be eligible for gratuity payment.

Mr Babu ;
No statute say that employer has to make provision of 4.81% of basic for gratuity.You may be guided by Sec.4-A of POG Act.But that is not yet implemented by the GOI.One more thing ,gratuity is not paid on basic alone.DA is also considered if paid.
Varghese Mathew

Dear member
Employer has no right to deduct applicable Gratuity Amount from the employee's salary. Gratuity is payable to an employee, by the employer, once he/she completes 5 years of continued employment. Normally employer reflects 4.8% of Basic + DA amount of employee, as Gratuity amount, while calculating his/her yearly / Monthly CTC. Many companies consider Gratuity, PF (Employer), ESIC, Medical Insurance, Life Insurance, Bonus etc. towards calculation for employee's CTC. Nevertheless, Gratuity amount cannot be deducted from the employee's salary, as it is a facility provided by many employers for the purpose of employee's continued services with them.
Thks & Rgds
Vijayan K

Dear Parul,

1) As many members pointed out it is wrong & illegal to deduct gratuity contribution from the salary of the employee. Gratuity is a contribution of the employer to employee for being paid to the employee when he/she leaves (or dies or terminated) the employer when once he/she becomes eligible for payment of gratuity under the Act.

"Unless otherwise if the employees' pay roll is worked out on CTC pattern where all 'Cost to Co." shall be indicated and thus a proportional gratuity could be shown as deduction..." I don't think any employer shows all the components of CTC is shown in the Pay roll/slip.

2) An employee becomes eligible to receive gratuity after completion of 4 yrs.+ 240 days of 'continuous service'. So for services less than 4+240 days service one cannot become eligible for payment of gratuity and the contribution paid towards him/her becomes forfeited and go back to the kitty of the employer. Also Gratuity corpus doesn't distribute accrued interest to the employees like EPF.

3) Retires after serving for 3 yrs. ? How ? Served elsewhere for the rest of the period ? Your query is not clear. However 4 yrs + 240 days service cannot be relaxed except in death & permanent disablement, closure of firm etc.

4) Unlike EPF & EPS which can be paid or transferred to the next employer, gratuity cannot be transferred to the next employer, except, ofcourse in the case of Govt. & PSU sectors where gratuity also can be transferred to the next employer by mutual consent by remitting the equivalent money like EPF. with or without accrued interest.

R U clear friend ?


just needed to know - if company is paying gratuity to employee at point of retirement, are they also supposed to encash balance leave? I had understood it as 'no' but want to be sure before i advice management.
thanks, menon

Yes if your Co is a factory.If not it depends on Co policy. Varghese Mathew
Thank you Varghese. Mine is a school and i also wanted to check if it matters what cadre the employee is - the person in question is a lady peon (Class IV employee) and we would like to ensure she gets what she deserves.

She is eligible for Gratuity as per POG Act.Encashment depends on policy.It is better to encash she has unavailed leave. Varghese Mathew
Hi Mathew,
Thank you for the information. Gone through Sec.4-A of the POG Act and could find information on provision but not mentioned 4.81
How is 4.81% is considered by the companies for provision of Gratuity?

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