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Amit Sehgal27
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Thread Started by #HR576

Dear All,
Greetings of the day..
I am working with an IT company of 30-40 employees. We are enrolled in pf/esi act. I just want to know that is it compulsory to pay gratuity? If yes, then is it deducted from the ctc of employee every mnth? Please help me out in this.
25th June 2014 From India, New Delhi
Dear Seema,
The Gratuity Act is applicable if employer engaged 20 or more workmen in any month and it has to be paid to the employee after completion of continuous service of at least 4 years and 240 days.
Of course you can make a provision while deducting partial contribution from his/her CTC.
25th June 2014 From India, Mumbai
Dear friend,

Gratuity is a terminal benefit payable by the employer to an employee on the termination of his employment other than dismissal on a/c of certain proven misconduct for which a prior notice of forfeiture has been issued by the employer. The Payment of Gratuity Act,1972 is a complete code in itself on the subject-matter of gratuity payable to the employees employed in every factory, mine, oil-field, plantation and port irrespective of their number and in every shop or establishment within the meaning of any Law applicable to it and has 10 or more no. of employees and in such other establishment having 10 or more no. of employees as.notified by the Central Govt in this regard. The minimum qualifying period of service to make an employee eligible for gratuity is not less than 5 years of continuous service.However, this condition of minimum qualifying service is not applicable to the cases of termination due to death or disablement. Invariably, establishments engaged in IT and ITES are covered under States' Shops and Establishments Acts. You've also mentioned that your establishment already stands covered under the EPF Act.So, the P.G Act,1972 is applicable to your establishment and you have to pay gratuity to your employees on their termination of employment.

Contrary to periodic contribution to P.F and E.S.I, the payment of gratuity is not based on mutual contribution. It is the sole contribution of the employer without making any deduction from the earnings of the employee and of course, it can be included in the C.T.C on actuarial basis.
25th June 2014 From India, Salem
Umakanthan M has replied you aptly, you are also requested to refer the Gratuity Act to have a clear cut idea all about Gratuity, enclosing herewith FAQ of Payment of Gratuity for your reference which am sure will help you understand it thoroughly
26th June 2014 From India, Ahmadabad

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First of all thanks to all of u for your suggestions.
I have one more querry, that if we are providing a mediclaim insurance to employees, Can it be considered as liability of gratuity? Means then also we are bound to pay gratuity?
26th June 2014 From India, New Delhi
Dear Seniors, Would like to know. Are we still liable to pay Gratuity, if the employee absconds, just few days after the completion of 5 years and he was in a legal suspect. Regards Gayathri
26th June 2014 From India, Bangalore
Medical Insurance to employees is different from Gratuity, Medical Insurance is provided to cover all medical expenses of the employees whereas Payment of Gratuity is paid for continuous service of an employee, both are different in nature.
26th June 2014 From India, Ahmadabad
Yes legally you are liable/bound to pay Gratuity as per the Act
26th June 2014 From India, Ahmadabad
No, you cannot deduct gratuity from employee's part and mostly recommended not to be added in CTC. It is solely employer contribution towards an employee who has given his valuable 5 years for the oragnisation.
So every employer has to pay gratuity to employee who has completed 5 years.
27th June 2014
Hi Seema,
The payment of Gratuity Act, provides for payment of gratuity on completion of 5 years of continuous service. However in the event of unfortunate death of an employee the minimum requirement of 5 years is not required.
The concept of CTC is just to indicate that what is the total cost involved in employing an employee by the employer. Not all the components mentioned in the CTC are deemed as payable to the employee. Similarly the payment of Company contribution of PF and Contribution to the Gratuity Fund with LIC or any other agency can not be construed as recovery from the employee's CTC.
27th June 2014 From India, Madras
Additional Detail:
If any Employer is intentionally delaying payment of gratuity beyond 30 days, the staff can file a petition to the Commissioner of Labour (Payment of Gratuity) in the prescribed form (Form 10N) and the Government will follow up with the Employer and ensure that the amount is paid.
27th June 2014 From India, Chennai
Yes Dear. As some other Gentleman has said, the Organization is liable to pay his eligible Gratuity even if he is caught in a legal/criminal case. However, if the Organization has initiated any legal/criminal case against him for fraudulent activities, he will not be eligible if it is proved.
Selvaraj Ponnuswamy.
27th June 2014 From India, Coimbatore
Mr Umakanthan aptly clarified 1) The payment of of Gratuity 2) Not connected to CTC. Please read the same.
28th June 2014 From India, Nellore
Dear HR567

The Payment of Gratuity Act 1972 is a Social Security Act and applies to every shop or establishment within the meaning of law for the time being in force in a State in which 10 or more persons are employed or were employed on any day of the preceding 12 months.

Gratuity is Social Security right of an employee which shall be payable to an employee on termination of his employment after he has rendered continuous service for not less than four years or and 240 days, before in case of death of employee while in employment with the company.

Gratuity is Social Security Obligation of an Employer towards his employee and is legally bound to pay the same to his employees under Sec 4 The Payment of Gratuity Act 1972.

As per Accounting Standard (AS) 15 (revised) every company is required to make provisions towards gratuity by way of independent actuarial valuation and provide for accrued liability in respect of long term employee benefits.

As per Section 209 Companies Act 1956 every company is required to maintain books of account reflecting clear, true and fair view of transactions mentioned under section 209 (1) a to d.

Being a law abiding Company it is imperative for companies that they oblige and adhere to mandatory compliance under Accounting Standard (AS) 15 (revised- 2005 ) read along with Sec 209 of Companies Act at all times.

Coming back to CTC query raised by you

Cost To Company means any cost that company bears (whether statutory or otherwise) on employment of any employee in to the company. If you read the above explanation you will understand that Company has to make provision towards Gratuity and that is a Cost To Company and taking or calculating Gratuity as a component of CTC is justified.


1st July 2014 From India, Mumbai
Dear what is told is that CTC, of course cost to the company. But there is no recovery from the employee towards gratuity. It need not be shown on the pay slip of the employee.
2nd July 2014 From India, Nellore
Dear Seema,
FYI as per the Payment of gratuity act 1972 ,the act state about the provision of processing the gratuity to all on roll employees Enrollment of PF / ESIC act doesn't have any coinciding point.
There is no relation between estblishment/factory registration under PF/esic and making provision for Gratuity to its employees.
Moreover on the issue of POG Act 1972 it shouldn't be included as a part of CTC bcoz it will be taxable as income on salary .
Moreover its paid to the Employees after the minimum continuous employment of 5 years in the respective company/ organization.
3rd July 2014 From India, Indore
Dear seniors
I have a query as the salary register is maintained to prove that the company has distributed this amount as salary and wages. Ad the bonus is paid through bonus form c register. How the gratuity amount is paid. What is the register to prove that co. Has given this and this amount as gratuity. In which register gratuity payment is mentioned.
3rd July 2014 From India, New Delhi
Dear Mr.Dinesh,
A separate register should be maintained for payment of gratuity. Apart from this,the gratuity settlement sheet of each staff should be separately maintained.This sheet will have the workings for the gratuity amount and the stamped receipt from the staff.
4th July 2014 From India, Chennai
Mr.Umaranthan has aptly replied the provisions as existing in the Gratuity Act 1972.
It is a welfare legislation - to reward an employee for his long unblemished service in an establishment. I feel small establishments, in order to meet the future payment of gratuity can create a fund by depositing actuarial value of the work force reuglarly.
4th July 2014 From India, Bangalore
In my company gratuity is part of CTC and it is being deducted from my monthly salary. Is it right as per law? What if I dont want to work for 5 years.
8th November 2017 From India, Delhi
I appreciate the contribution of Mr. Umakanthan on the issue of " Gratuity". He explanation in nutshell is quite informative.
Regarding including the Gratuity in CTC:- Inclusion in CTC or not to be included opinion differs, because the concept has no legal support from any of the statutes. It is all an act of glorifying the benefits, that the organisation wants to give to an employee. As long as the system of negotiation of payment of salary and related benefits are bargained, the CTC system prevails. Since the gratuity is charged and provision is created for employee benefits, in its accounts, definitely Company has an option to include it in CTC.
(A) HR.Gayathri's query- raises Two issues-(1) the employee in his fag end of 5 years of service- has absconded-legal suspect whether the gratuity is payable? For the issue no 1 of the question-answer lies in Section 2A of the Act deals which deals with the Continuous service and its explanation- Since the employee has absconded action taken to deal with his absence is not explained, means it is still open. If the management terminates his service as per the service rules or the standing orders, payment of gratuity does not arises. because " Gratuity" is payable on three occasions only (a) on Superannuation (b) on his retirement or resignation (c) On his death of disablement.
Regarding Legal Suspect-it is not elaborated or explained in brief, so no suggestions
14th November 2017 From India, Bangalore
Hello Sir,
Good Afternoon,
My name is sarvesh
I am as Admin Manager, I want to know when gov decide minimum wages for sate so in which category admin manager will come in Uttar Pradesh. What is the minimum wages will be of Admin manager if i work in private limited company.?
1st August 2018 From India, Moradabad
Dear sir,
One my friend joined the company as a consultant in January 2001, he was raising bill every month & was getting consultancy fees month wise. He was also eligible for yearly performance bonus as regular employees of the company.
After around four years in April 2005 he was become regular employee & got complete CTC letter including PF and everything.
In these case if leaves the company today then he will get gratuity from Jan 2001 or April 2005. There was no break in the job during consultancy period.
As per company's record his join date is April 2005.
Kindly guide me.
15th October 2018 From India, Ahmedabad
Dear friend,
I think that in the first place, it is necessary to understand the concepts of "contract of service" and "contract for service".
A "contract of service" is an explicit or implied agreement between the individual who provides employment and is called as "employer" and the other individual who accepts the employment and serves under the former subject to his control and supervision as per the terms of the contract and therefore called as "employee". Thus there exists a substantial relationship of employer and employee which is governed by the terms of the contract between them. The consideration payable to the employee is called "salary" or "wage" and certain other statutory benefits called as "fringe benefits"of employment.
A "contract for service" is an explicit agreement between two parties of whom the provider of the service is called as "contractor" and the other who gets the service is the "contractee". Here the contractual relationship between the two lasts only during the subsistence of the contract subject to the mutual compliance of the predetermined terms of the contract and no substantial relationship is created thereafter. The consideration payable to the contractor under the contract for service is "contract charges" or " fee" as may be depending upon the nature of services rendered.
Coming to your friend's case, the first 4 years from 2001, he was under a contract for service and therefore a contractor only rendering some specified services to the organization. From 2005 onwards, he became an employee of the organization under a contract of employment.
Therefore, if he resigns now, he can not stake any claim for gratuity for the period of service rendered as a consultant despite of no gap between the two spells the former one as a contractor and the latter one as an employee of the same organization.
15th October 2018 From India, Salem
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