My organization is a Pvt Ltd company. As a part of my CTC, the company is deducting gratuity each month from my salary.
Gratuity Entitlement Query
My query is: if I leave the organization before completing 5 years of service, am I entitled to claim the gratuity?
Regards
From India, Jaipur
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Gratuity Entitlement Query
My query is: if I leave the organization before completing 5 years of service, am I entitled to claim the gratuity?
Regards
From India, Jaipur
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I would like to bring to your notice that it is the employer or company that includes gratuity as part of CTC. At the time of joining the company, you should have mentioned this during the interview. This could have been avoided if communicated earlier.
Secondly, as per the Gratuity Act, it is payable only after the completion of 5 years and not before. Additionally, it is payable in the case of the accidental death of an employee, regardless of completing 5 years or not. The gratuity amount shall be paid to a relative, such as a parent or spouse in the case of a married employee.
I hope I have addressed your question correctly.
Regards,
Sunil Choughule
From India, Mumbai
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14Secondly, as per the Gratuity Act, it is payable only after the completion of 5 years and not before. Additionally, it is payable in the case of the accidental death of an employee, regardless of completing 5 years or not. The gratuity amount shall be paid to a relative, such as a parent or spouse in the case of a married employee.
I hope I have addressed your question correctly.
Regards,
Sunil Choughule
From India, Mumbai
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The gratuity component might have been apportioned towards the gratuity payout, which many companies are doing while structuring the CTC to lure employees. It may not be deducted from the payslip. Check again.
Regards,
Pon
From India, Lucknow
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Regards,
Pon
From India, Lucknow
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Namaskaram,
The gratuity will be settled by the employer after completing five years of service by any person. No company will deduct the gratuity amount from the employee. However, this amount will be shown in the CTC by the companies. You will not be eligible for gratuity if you leave before five years of service.
Regards,
Manokavi
From India, Coimbatore
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The gratuity will be settled by the employer after completing five years of service by any person. No company will deduct the gratuity amount from the employee. However, this amount will be shown in the CTC by the companies. You will not be eligible for gratuity if you leave before five years of service.
Regards,
Manokavi
From India, Coimbatore
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As an expert in HR, I would like to address the information provided regarding gratuity payments for employees. When an employee completes 5 years of service, they become eligible for gratuity payment. Some companies include gratuity in the CTC (Cost to Company) components due to having policies with LIC that require a certain premium investment per employee based on their (Basic+DA) components, as gratuity payment correlates directly with the Basic+DA amount.
To mitigate risks, some companies have policies in place to ensure timely settlement of gratuity payments for former employees, thereby avoiding any immediate financial burden on the company's current expenses.
Regards,
Prashant Hole
From India, Pune
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To mitigate risks, some companies have policies in place to ensure timely settlement of gratuity payments for former employees, thereby avoiding any immediate financial burden on the company's current expenses.
Regards,
Prashant Hole
From India, Pune
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First of all, there cannot be any deduction from the payment of monthly salary towards Gratuity because the act does not allow it. Therefore, please check and correct the query.
Secondly, in the CTC concept, all the costs to the employer are part of the CTC. It is also important to note that if the employee is conditionally employed for less than 5 years, no gratuity amount will be made part of the CTC. Furthermore, in CTC, various amounts are shown but they are paid as per the provisions of the respective act only. Therefore, if any employee leaves before completing 5 years of service, he/she is not entitled to payment of gratuity.
From India, Gwalior
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Secondly, in the CTC concept, all the costs to the employer are part of the CTC. It is also important to note that if the employee is conditionally employed for less than 5 years, no gratuity amount will be made part of the CTC. Furthermore, in CTC, various amounts are shown but they are paid as per the provisions of the respective act only. Therefore, if any employee leaves before completing 5 years of service, he/she is not entitled to payment of gratuity.
From India, Gwalior
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As per the current scenario in private sector companies, it has been observed that some companies are including gratuity as a part of Cost to Company (CTC) or total emolument payable to an employee per month or annum. Making gratuity part of CTC raises two questions:
i) Whether gratuity should be part of CTC or not?
ii) If yes, can an employee claim it at the time of separation before completing 5 years?
Let us search for the answer and evaluate both questions in light of the provisions of the applicable relevant legislation, i.e., the Payment of Gratuity Act 1972 and the rules made therein.
Whether Gratuity Should Be Part of CTC or Not?
The preamble of the Payment of Gratuity Act itself is clear that it was enacted to introduce a scheme for the payment of gratuity for certain industrial and commercial establishments as a measure of social security. The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory retirement benefit.
Section 4 of the Act provides the conditions for the payment of gratuity to any employee as follows:
(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.
Section 4(2) provides the quantum of gratuity payable to the eligible employee as follows:
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
Explanation: In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.
A plain reading of the above provisions suggests that gratuity shall be payable to an employee when the employee completes continuous service of 5 years, except in the case of death or disablement where this condition of 5 years continuous service is not applicable.
"Gratuity," as observed by the Supreme Court in its etymological sense, means a gift, especially for services rendered or in return for favors received (Delhi Cloth & General Mills Co. Ltd. v. Its Workmen AIR 1970 SC 919).
The general principle underlying the gratuity scheme is that by their length of service, workmen are entitled to claim a certain amount as a retirement benefit (Indian Hume Pipe Co. Ltd. v. Its Workmen See AIR 1960 SC 251). Gratuity has to be considered an amount paid unconnected with any consideration and not resting upon it and has to be considered something given freely or without recompense. It does not have a foundation on any legal liability but upon a bounty stemming from appreciation and graciousness. Long service carries with it the expectation of appreciation from the employer and gracious financial assistance to tide over post-retirement difficulties.
Gratuity is a social/retirement statutory benefit payable to an employee by the employer as a reward for good, efficient, and faithful service rendered for a considerable period of at least 5 years. This has been observed by the Apex Court in a series of judgments on the subject, and the calculation of the gratuity amount shall be based on the last drawn wages of the employee.
Legally, the right which will accrue to an employee after 5 years, how can that right be affected from day one, and further, when the calculation is based on the last drawn wages, how can the amount be fixed initially while the basic wage structure of any employee is subject to change every year?
In view of the above, we are of the considered opinion that making gratuity a part of CTC is completely against the provisions of the PG Act and the intention of the legislation being social welfare legislation.
Further, if an employer contends that they have made the provisioning for considering the future prospects and have subscribed to a scheme of insurance for setting up a trust for the gratuity fund in terms of section 4A of the Act, it is also not tenable because section 4A has not been implemented and never notified by the Government of India or any state except the state of Andhra Pradesh.
Even in the case of the constitution of a voluntary scheme of insurance, the employer cannot deduct the contribution of gratuity toward such an insurance scheme from the wages of the employee as there is no provision under the PG Act which allows the employer to deduct or contribute any amount from the salary of employees. The administration of the Gratuity Scheme, if any, shall be the responsibility of the employer itself.
If Gratuity is Part of CTC, Can an Employee Claim Such Amount as Wages?
Though legally the answer to the first question is negative, still in the guise of CTC, if any employer is making gratuity a part of CTC (as there is no definition of CTC provided under any law) and showing the same in the monthly & annual pay package, then it may amount to earned wages of an employee. In case of any dispute, the employee can claim such a deduction as illegal and can recover the same as his earned wages.
In case the employee does not claim such an amount deducted as gratuity from the wages of an employee, then it should be deposited with the Welfare Commissioner of the concerned state in light of the provisions of the Labour Welfare Fund Act of that state as unpaid wages/accumulation at the end of the year.
From India, Delhi
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i) Whether gratuity should be part of CTC or not?
ii) If yes, can an employee claim it at the time of separation before completing 5 years?
Let us search for the answer and evaluate both questions in light of the provisions of the applicable relevant legislation, i.e., the Payment of Gratuity Act 1972 and the rules made therein.
Whether Gratuity Should Be Part of CTC or Not?
The preamble of the Payment of Gratuity Act itself is clear that it was enacted to introduce a scheme for the payment of gratuity for certain industrial and commercial establishments as a measure of social security. The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory retirement benefit.
Section 4 of the Act provides the conditions for the payment of gratuity to any employee as follows:
(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.
Section 4(2) provides the quantum of gratuity payable to the eligible employee as follows:
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
Explanation: In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.
A plain reading of the above provisions suggests that gratuity shall be payable to an employee when the employee completes continuous service of 5 years, except in the case of death or disablement where this condition of 5 years continuous service is not applicable.
"Gratuity," as observed by the Supreme Court in its etymological sense, means a gift, especially for services rendered or in return for favors received (Delhi Cloth & General Mills Co. Ltd. v. Its Workmen AIR 1970 SC 919).
The general principle underlying the gratuity scheme is that by their length of service, workmen are entitled to claim a certain amount as a retirement benefit (Indian Hume Pipe Co. Ltd. v. Its Workmen See AIR 1960 SC 251). Gratuity has to be considered an amount paid unconnected with any consideration and not resting upon it and has to be considered something given freely or without recompense. It does not have a foundation on any legal liability but upon a bounty stemming from appreciation and graciousness. Long service carries with it the expectation of appreciation from the employer and gracious financial assistance to tide over post-retirement difficulties.
Gratuity is a social/retirement statutory benefit payable to an employee by the employer as a reward for good, efficient, and faithful service rendered for a considerable period of at least 5 years. This has been observed by the Apex Court in a series of judgments on the subject, and the calculation of the gratuity amount shall be based on the last drawn wages of the employee.
Legally, the right which will accrue to an employee after 5 years, how can that right be affected from day one, and further, when the calculation is based on the last drawn wages, how can the amount be fixed initially while the basic wage structure of any employee is subject to change every year?
In view of the above, we are of the considered opinion that making gratuity a part of CTC is completely against the provisions of the PG Act and the intention of the legislation being social welfare legislation.
Further, if an employer contends that they have made the provisioning for considering the future prospects and have subscribed to a scheme of insurance for setting up a trust for the gratuity fund in terms of section 4A of the Act, it is also not tenable because section 4A has not been implemented and never notified by the Government of India or any state except the state of Andhra Pradesh.
Even in the case of the constitution of a voluntary scheme of insurance, the employer cannot deduct the contribution of gratuity toward such an insurance scheme from the wages of the employee as there is no provision under the PG Act which allows the employer to deduct or contribute any amount from the salary of employees. The administration of the Gratuity Scheme, if any, shall be the responsibility of the employer itself.
If Gratuity is Part of CTC, Can an Employee Claim Such Amount as Wages?
Though legally the answer to the first question is negative, still in the guise of CTC, if any employer is making gratuity a part of CTC (as there is no definition of CTC provided under any law) and showing the same in the monthly & annual pay package, then it may amount to earned wages of an employee. In case of any dispute, the employee can claim such a deduction as illegal and can recover the same as his earned wages.
In case the employee does not claim such an amount deducted as gratuity from the wages of an employee, then it should be deposited with the Welfare Commissioner of the concerned state in light of the provisions of the Labour Welfare Fund Act of that state as unpaid wages/accumulation at the end of the year.
From India, Delhi
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Recently, a member shared a circular stating that PF is not applicable on CTC. You can read more about it here: https://www.citehr.com/488005-pf-not...cable-ctc.html.
The same logic applies to gratuity for those who are in the CTC regime. The gratuity component is merely shown in the CTC as part of retiral benefits to inflate the CTC and make it more attractive to employees. However, such CTC sheets contain a rider clause on its applicability as per the Gratuity Act. This practice is a tactic employed by certain private organizations.
Pon
From India, Lucknow
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The same logic applies to gratuity for those who are in the CTC regime. The gratuity component is merely shown in the CTC as part of retiral benefits to inflate the CTC and make it more attractive to employees. However, such CTC sheets contain a rider clause on its applicability as per the Gratuity Act. This practice is a tactic employed by certain private organizations.
Pon
From India, Lucknow
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Even I am in support of the deduction of gratuity from CTC, but I have one query regarding the circular stated by EPFO. What if the employer does not show the gratuity deduction in their balance sheet?
Regards,
Ashish
From India, Pune
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Regards,
Ashish
From India, Pune
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How can you say it is a deduction? It is a provision for gratuity. I already explained that they are showing the retiral benefits just for the sake of boosting the CTC and making a fool of employees.
Regards,
Pon
From India, Lucknow
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Regards,
Pon
From India, Lucknow
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Gratuity Deduction from Salary
Deducting gratuity from the wages/salary of the employee is illegal. It is a mandatory payment on the part of the employer to pay the employee if he completes five years of continuous service, as defined in the Payment of Gratuity Act.
Thanks,
R K Nair
From India, Aizawl
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Deducting gratuity from the wages/salary of the employee is illegal. It is a mandatory payment on the part of the employer to pay the employee if he completes five years of continuous service, as defined in the Payment of Gratuity Act.
Thanks,
R K Nair
From India, Aizawl
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As far as my knowledge is concerned, CTC means the Cost to Company, i.e., what is the cost of an employee borne by the company. This component includes the gross salary, EPF (only the employer's share with administrative charges), ESIC (only the employer's share), earnings through paid leave (on a monthly basis), bonus or ex-gratia (on a monthly basis), and gratuity (on a monthly basis), apart from any other perks provided by the employer. However, this component cannot be deducted from the employee's gross figure; CTC includes only the components that are provided by the employer. Deductions of 12% of EPF, 1.75% of ESIC, and the labor welfare fund (if any) cannot be a part of it. Putting the term CTC in the offer/appointment letter is also not valid.
Thanks & Regards,
Sumit Kumar Saxena
From India, Ghaziabad
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Thanks & Regards,
Sumit Kumar Saxena
From India, Ghaziabad
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[QUOTE=amitdayama;2135271]
Dear Sirs,
My organization is a Pvt Ltd company. As a part of my CTC, the company is deducting Gratuity each month from my salary. My query is that if I leave the organization before 5 years of service, am I entitled to claim the gratuity?
Gratuity Entitlement Clarification
Dear Sir,
I understood your question. As per the Gratuity Act, you shall not be entitled to claim or be liable to receive gratuity if you do not complete 5 years from the date of your joining any organization.
Hope your question has been answered.
Sunil Choughule
From India, Mumbai
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Dear Sirs,
My organization is a Pvt Ltd company. As a part of my CTC, the company is deducting Gratuity each month from my salary. My query is that if I leave the organization before 5 years of service, am I entitled to claim the gratuity?
Gratuity Entitlement Clarification
Dear Sir,
I understood your question. As per the Gratuity Act, you shall not be entitled to claim or be liable to receive gratuity if you do not complete 5 years from the date of your joining any organization.
Hope your question has been answered.
Sunil Choughule
From India, Mumbai
Acknowledge(0)Amend(0)
Recently, a member shared a circular stating that PF is not applicable on CTC. The same logic applies to gratuity for those under the CTC regime. The gratuity component is merely included in the CTC as retiral benefits to enhance the CTC's attractiveness to employees. However, it is important to note that such CTC sheets contain a rider clause specifying its applicability as per the Gratuity Act. This practice is being employed by certain private organizations.
There is a difference between the PF circular and gratuity. The PF circular was issued based on the definition of wages prescribed under the PF Act. Additionally, the circular includes a rider stipulating that the PF contribution amount must be clearly shown in the company's balance sheet.
From India, Delhi
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There is a difference between the PF circular and gratuity. The PF circular was issued based on the definition of wages prescribed under the PF Act. Additionally, the circular includes a rider stipulating that the PF contribution amount must be clearly shown in the company's balance sheet.
From India, Delhi
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[QUOTE=amitdayama;2135271]Dear Sirs,
My Organisation is a Pvt Ltd company. As a part of my CTC, the company is deducting Gratuity each month from my salary. My query is that if I leave the organisation before 5 years of service, am I entitled to claim the gratuity?
Gratuity Deduction in CTC
Some organizations include the gratuity amount in the CTC. However, deducting the gratuity amount from your salary is not reasonable. You can only be entitled to the gratuity after completing a five-year period.
Regards,
MANOKAVI
From India, Coimbatore
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My Organisation is a Pvt Ltd company. As a part of my CTC, the company is deducting Gratuity each month from my salary. My query is that if I leave the organisation before 5 years of service, am I entitled to claim the gratuity?
Gratuity Deduction in CTC
Some organizations include the gratuity amount in the CTC. However, deducting the gratuity amount from your salary is not reasonable. You can only be entitled to the gratuity after completing a five-year period.
Regards,
MANOKAVI
From India, Coimbatore
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