Madhu.T.K
Industrial Relations And Labour Laws
Mahr
Head - Human Resources
Psdhingra
Legal Analyst, Hrm
Sumitk.saxena
Service/manager-hr
Sanjeev.Himachali
Hr & Od Consultant
MANOKAVIN
Manager Hr & Admin
Loginmiraclelogistics
Asso.prof.(commerce & Management) Pg
Ashutosh Thakre
Hr Professional
Satyaprasad.rayudu
Asst Manager Hr
Masterfiroz
Manager Hr
+7 Others

Thread Started by #Sanjeev.Himachali

As per The Payment of Gratuity Act, 1972, Gratuity is an award which an employer pays out of his gratitude, to an employee for his long and meritorious services, at the time of his retirement, or termination of his services. Payment of gratuity is, however, compulsory for employers, subject to eligibility mentioned in the legislation. One of the compulsory eligibility is – “Continuous Service of FIVE Years”.

By definition, Total Cost to Company (TCTC) means total amount payable to an employee or on behalf of employee, directly or indirectly, in a year. Hence, among all other heads, TCTC includes contribution towards Provident Fund (PF), contribution towards Employees’ State Insurance, payment of bonus, variable component of TCTC (performance linked bonus, if bonus), and contribution towards any other benefits payable to an employee in a year.

Hence, deduction towards Payment of Gratuity is legal or illegal? Gratuity becomes payable, if and only if, an employee completes FIVE years of continuous service with organization. If an employee leaves the organization within FIVE years of joining, he is not paid the Gratuity Amount, even though the amount has been deducted from his CTC and kept aside.

Do you think deduction made from the TCTC of an employee towards payment of gratuity, is legal or illegal? Is it ethical?

You can share your thoughts…
20th November 2015 From India, Mumbai
Hi Sanjeev, It is not illegal to include Gratuity in the CTC, as it is an actual cost to the company. Many companies take insurance for Gratuity as well.
20th November 2015 From India, Bangalore
There is nothing wrong in including gratuity in the CTC, that an employer can include anything in it including the cost of tea and coffee that an employee will have during office hours, the cost of uniforms that is given and each and every rupee that he spends for the employee. But what is wrong is the purpose or idea behind showing the cost of service of an employee as cost to the company as against the salary cost. This is just to attract people and lure them to accept the offers given by the employer. The employer can put any amount as variable pay and say that if you perform you can earn it, knowing that it is unreasonable and cannot be achieved at all. But the candidate who sells his service would accept it thinking that it is available to him either as part of monthly salary or is easily achievable. Everything goes wrong when time passes.

Gratuity is a real payment but is payable depending upon certain conditions, ie, continuous service of 5 years and the last drawn salary. If these conditions are mentioned, there is no illegality in including the amount in the CTC. But it is not to be deducted from the salary but is paid subject to the above mentioned conditions. I dont think that any company will show this as deduction from the salary in the pay slips. If so, claim it as unauthorized deduction and get the amount refunded immediately.

I do not personally favour the practice of CTC. In my opinion, the price that the employer will pay for the services that each employee gives should be equal to the benefits that the employer gets from these services of the employee. That is why we often ask in a job interview, why should we hire you?, which implies, what benefits would we get from hiring you?. This was ironically expressed by me long back, when the concept of CTC was in its inception stage, which figured to say CTC should be renamed as Benits to Company or BTC. Please follow the link below also.

Madhu.T.K: CTC Vs BTC

Madhu.T.K
21st November 2015 From India, Kannur
Hi Friends....I have 8 Yrs of HR experience. Lets share and make HR as successfull for organisation as well as employees.
21st November 2015 From India, Hyderabad
Good point for discussion to include Gratuity in Annual CTC offered to new joinee.
Whenever, CTC is mentioned, same is annual i.e. an employee will get the amount for serving the company for one year. And whereas some of the amounts are not paid annually. Gratuity amount is one of them which are paid after serving 5 years and on separation. They claim that this is part of my annual earnings and as such pay me. Their claim seems to be correct and becomes difficult to explain and understand them.
So, I would favour that CTC should have only that parts which are actually to be incurred on a candidate during one year. All benefits available to the candidates on separation should be mentioned separately with terms & conditions applicable. However, we can add other benefits like leaves etc Separate condition of Payment of Gratuity after 5 years' service can help to bind the candidate after serving the company for 2-3 years.
22nd November 2015 From India, Panipat
DEAR ALL If the gratuity is considered as CTC than my question is if the employee left service before completion of 5 YRs than he will be eligible for gratuity which is included in CTC?
23rd November 2015 From India, Mumbai
One more doubt on payment of Gratuity to the employee. Now-a-days some of the companies are engaging retired officials in the employment with due designation on term basis. The term basis employment is extended periodically and the employee happened to be in employment more than 5 years i.e. the fulfilling the requirement of service as per the Gratuity Act. Are the retired employees deployed by the companies more than 5years have a right to claim Gratuity, in the event of their term of employment is extended periodically without any gap in service.
23rd November 2015 From India, Mumbai
I am trying to address the query of Sanjeev.Himachali, the original querist.
It is fine if the employer adds gratuity in the CTC working. At the same time, it is contingent upon completion of 5 years of service. Therefore it will follow that if an employee leaves without completion of 5 years, employer should pay the equivalent amount of gratuity due to the employee for the number of years served. (gratuity shown as part of CTC, in the last increment letter).
Since it is not gratuity but it is cost to company and also part of the employee's salary, employee may be taxed at appropriate rate.
A S Bhat
23rd November 2015 From India, Pune
As regards the second query posted by Mr. Shridharan Venkatraman, generally retired employees are asked to serve again on contract basis, against a lump-sum consideration basis. Such contracts are renewable at the discretion of the employer, and not termed as regular appointment of an employee. Usual appointment letter and contract formats differ in terms and conditions. In such cases employee benefits like gratuity or PF will not be applicable.
But if the terms of engagement take a character establishing employer-employee relationship then certainly gratuity will be payable, if the the previously retired employee works for more than five years. I look forward to receive more reactions to this from experts in the field.
A S Bhat
23rd November 2015 From India, Pune
Cost to Company (CTC) is the salary package of an employee. It indicates the total amount of expense an employer (organization) is spending for an employee in a year. CTC is not the actual salary of an employee, it also includes all the facilities an employee is getting during the service period.
Like Gratuity, many companies also include Mediclaim in the CTC. An employee is covered in the Mediclaim, only till the time he is employed in the company, so is it that if he leaves in between, then the company, should repay him the balance mediclaim amount as he is not using the same anymore.
Similarly, Variable Pay is also included (with a raider), this is payable only on certain achievements, by the self and company.
So, Including Gratuity is also permissible (with a raider). There is nothing illegal or unethical in the same.
Regards,
Ashutosh Thakre
24th November 2015 From India, Mumbai
Probably the concept of CTC would have emanated from a stipulation under the Accounting Standards of ICAI that all Cost of employees should be accounted on accrual basis, whether paid or payable later. That's why the gratuity like other annual costs on accrual basis are accounted in every year's accounts of an estt. to arrive at the Profit or Loss of the estt. at any point of time. Therefore grauity together with contributions to PF, ESI, cost of leave accrued, LTA, Insurance, other allowances, perquisites and other employee related benefits etc. are bracketed under the CTC. Thus gratuity in CTC is inclusive. However the stipulation that those complete 5 yrs. of continuous service only eligible to receive should be done away with for the simple reason that gratuity accrued has already been earned by the employee and therefore accounted by the employer year after year and must be converted as "due & payable as and when he/she leaves" like leave balance encashable. In denying gratuity to those fall short of 5 yrs. service gives undue advantage/enrichment to the employer because it was already charged in the A/cs but only written back in the year of leaving by overall adjustment/arriving at incremental liability.

Therefore gratuity while can be considered under CTC but subject to actual payment/disbursement only to become legal. Who will bell the cat ?
24th November 2015 From India, Bangalore
Once people understand that CTC(Cost to Company) is the sum of all rewards and benefits which a company is providing to the employee.
All direct benefits eg Salary,Da,Indirect benefits eg interest loans,Sodexo coupons and savings contribution-eg Gratuity,EPF will be included.
Gratuity will be paid if due after 5 years continous service,company includes the expense in CTC.
Nothing wrong with that.
As long as one realises his take home pay will be lower than CTC,then no confusion will arise.
24th November 2015 From India, Pune
The Govt. is any way proposing that like PF, the Gratuity also can be transferred to the new company and continuous service, i.e. without break in service will be the norm.
If the above proposal gets implemented, then the question automatically gets answered.
Regards,
Ashutosh Thakre
25th November 2015 From India, Mumbai
I dont know whether the government has proposed like what Ashuthosh has said. The Govt. can propose anything without understanding the consequences. They want only votes and not welfare of people and therefore can announce anything before any general election.

I dont think that this will be practical when the private sector employers are independent. In respect of an employee who leaves the service of an employer after 3 years he has no gratuity liability as such but the employer who hires this employee will be shouldering an unwanted burden of 3 years retrospective liability and he would be forced to pay gratuity if this person leaves him in just two years. This is not at all practical. Even in the case where section 4A is made mandatory and all state governments notify that gratuity fund is invested in LIC, it is not going to work because establishment who invests gratuity in LICs separate fund would be interested to get the unused funds of those who leave the company adjusted against its future instalments and would not be ready to let it go to another employer along with employees who leave. Therefore, the proposal would not work in our present scenario.

Madhu.T.K
25th November 2015 From India, Kannur
Dear Madhu,

I fully appreciate your apprehension and statement, "In respect of an employee who leaves the service of an employer after 3 years he has no gratuity liability as such but the employer who hires this employee will be shouldering an unwanted burden of 3 years retrospective liability and he would be forced to pay gratuity if this person leaves him in just two years. This is not at all practical," but only when the Government proposes to share the burden of one organisation by the other. In that case, the industry, itself, would take up the cudgels against the Government to vehently oppose the move, as no organisation would like to pay from its own resources for the other.

But, probably, you seem to have misconceived the statement of Mr. Ashutosh Thakre. Mr. Ashutosh Thakre has stated, "the Gratuity also can be transferred to the new company and continuous service, i.e. without break in service will be the norm." I don't know the basis on which Mr. Thakre has stated so, but the sense of his statement does not seem to subscribe to the transfer of liability. What I understand is that the gratuity amount may be proposed to be transfered from one organisation to another on joining new organisation. So, the issue can be expected to be clear only after seeing the Government proposal.
26th November 2015 From India, Delhi
Dear Ashutosh,
To avoid misunderstanding and misconception in th minds of the members/ industry, it would be better if you please intimate the source of your information, alongwith its web link, to enable the membrs go through the proposal and form their view points based on the spirit of the proposal in its right perspective, rather than assume anything in the absence of the proposal.
26th November 2015 From India, Delhi
Dear All,
Kindly find the link, based upon which i had said that the govt. is proposing to transfer the Gratuity like PF.
Labour law recast to add more leave to maternity, gratuity to be made portable - timesofindia-economictimes
Regards,
Ashutosh Thakre
26th November 2015 From India, Mumbai
Organisations can show gratuity as retiral benefits in CTC.. In this way it is clear that it will be applicable for an employee to take benefit of gratuity only on retirement or if he leaves the organisation after 5 years of service.
26th November 2015 From India, Pune
Transfer of gratuity from one establishment to another is already in vogue in Govt./Quasi Govt./PSUs where employees migrate from one to the other with mutual consent/prior arrangement. Of course these are not covered under the Gratuity Act but under their own Gratuity Rules. Like wise leave at credit, equivalent of which also transferred by remitting the cash equivalent from the transferring estt. to the transferee estt. Of course in these cases there is no 5 yrs. stipulation as in the Act. I think there is no ban if these arrangements are put into practice in other sectors also if both the parties agree for the benefit of employees involved. The fears of additional burden if and when implemented is only a misnomer as year on year gratuity contributions are already loaded in the accounts and therefore there won't be any addl.burden whatsoever. If I'm right even under the Act there is restriction to disburse to those <5yrs but not transferring the past service. Only missing link will be how to address if at all there arises a break in-between.
26th November 2015 From India, Bangalore
I just want to know that leave is mandate in service industry speciall manufacturing. If yes then is there any statement which clarify the same that leave is mandate.
28th November 2015 From India, Delhi
Once the package includes the Gratuity as an indirect benefit of wage component, it is the duty of the employer to pay Gratuity to the employee irrespective of the compliance of the required service of completion of 5 years service as per the Act (Since the employer himself has the commitment to pay Gratuity from day one service of an employee vide package issued to an employee). Is my understanding correct???
30th November 2015 From India, Mumbai
"" Is my understanding correct???""
Sridhar,
Your understanding is incorrect.
Gratuity will be paid only if employee fulfils minimum conditions like 5 years continuous service.r
The fact that gratuity is included in CTC is only accounting understanding that after due period of service this amount will be due to be paid by company on exit of employee.
30th November 2015 From India, Pune
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Therefore, when we study Gratuity aspect juxtaposed with "CTC" and "Payment" it loses the character of CTC (for those not payable having <5 yrs. service). On the other hand, however de facto, gratuity as CTC is only for those completing 5 yrs of continuous service. Hence Gratuity as part of CTC should not be considered at all till completion of 5 yrs. Am I right ?
1st December 2015 From India, Bangalore
Dear Sanjeev,

By the term "CTC" we should not restrict our imagination merely on point of view of the HR. CTC (cost to company), as the term reveals is an accounts & finance term that intends to denote commercial accounting of transactions made with reference to the staff & establish matters, rather than any HR activity. For the purpose of HR, the terms of salary, wages, pay & allowances and the emoluments can well be used. The CTC in a company denotes commercial vallues for the purpose of accounting, as the company has to maintain its accounts on commercial pattern for arriving at the true results of profit & loss and assets & liability after shouldering its likely liabilities during and/or after the service period of the employees.

So, with reference to your assumption and question, "deduction towards Payment of Gratuity is legal or illegal? Gratuity becomes payable, if and only if, an employee completes FIVE years of continuous service with organization. If an employee leaves the organization within FIVE years of joining, he is not paid the Gratuity Amount, even though the amount has been deducted from his CTC and kept aside. Do you think deduction made from the TCTC of an employee towards payment of gratuity, is legal or illegal? Is it ethical," I would like to say that gratuity element in CTC is not a deduction, rather a held up amount to show liability that the company has to evenually bear in making payment after the employee actually becomes eligible, as per the law of the land. The said liability gets included every year in the annual accounts of the company to arrive at the true position of its profit and loss on commerical accounting pattern for the purpose of information to its stake holders and the share holders, so that the burden may not affect its revenue and profits in lump in the year of payment. In other words, that is just to facilitate smooth sailing of their funding position and to reveal the real financial health of the company from year to year basis.

So, the question of ethics, legality or deduction of gratuity does not arise when it is concerned with the HR functions or the salary/ wages of the employees, as that denotes a presumptive nominal value for the purpose of funding the operations of the company and to bear when becomes due to be paid. However, if that does not become due to the employee due to his ineligibility that remains as part and parcel of the profits & losses of the company that alsready stand incorporated in the books of accounts of the company.

So, it is quite legal and has no illegality or against ethics. Rather that helps the employee to show his real worth when applying for another job elsewhere.
2nd December 2015 From India, Delhi
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That apart, apparently there is no legality or illegality in "CTC" as this term finds no place in statute. My worry is about, in a way the illogical gain that an employer would make when gratuity is forfeited from those leaving for < 5 yrs. service (not an indiscipline) which was appropriated from the CTC. Which in other words can be termed as "unjust enrichment".
2nd December 2015 From India, Bangalore
As I know, Annual CTC is not a legal term. It is designed by the companies to attract & allure the new joinees. Therefore, company go on adding any type of expenditure like gratuity which is tenable on separation after 5 years of continuous service. At the start of the job, no tenure of separation can be decided. Hence, how can we say this is expenditure or accrued expenditure.
I may inform that only actual expenditure incurred is booked in the books. If any amount is booked in books on accrual basis, same is to be released to the concerned person/party before filing of ITR. Hence, no part of the CTC is booked in books of accounts other than actual or accrual. If we examine from income tax view, how amount can be booked for which tenure or limit is not decided. Pls note that gratuity is to be calculated on the basis of last pay drawn.
2nd December 2015 From India, Panipat
Nathrao ji, Thanks for your appreciation and endorsing my views, "Rather that helps the employee to show his real worth when applying for another job elsewhere."
3rd December 2015 From India, Delhi
Dear Shri Kumar,
Probably, you are in some misunderstanding about forfeiture of gratuity. Gratuity forfeited in lump at the time when actually becomes due for payment after termination of employee or out of the amount shown in through annual CTC, is one and the same thing, as no change in situation happens in case of forfeiture, as per law., as that is merely an accounting implication. So, there happens no illogical gain whether the forfeiture is at the time of termination or of the accummulated total, as shown in the CTC, when that is in accordance with the Payment of Gratuity Act.
3rd December 2015 From India, Delhi
Dear Shri Gupta,

If CTC is not legal, in any way, it would be nice on your part to quote some section of the Act according to which that is illegal. That may not only enrich my lnowledge, rather would enlighten all other members of the forum also.

For your kind information, CTC has nothing to do with the Payment of Gratuity Act. So, you cannot expect any mention of the term "CTC" in the law pertaining to the Payment of Gratuity. The Act provides deals with the entitlement of the employees for the payment of gratuity and the penal provisions for violation of the law. Had the CTC been linked to the Payment of Gratuity Act that would definitely have defined the term CTC and the penal provisions, if the CTC would have been illegal in any manner. So, there is no use of raising any controversy about the accounting term "CTC" vis-a-vis the provisions of the Payment of Gratuity Act.

We must understand that both the HR & Accounting functions of any commercial organisation are quite distinct. While the Accounting department cannot raise any finger on the decision of the HR in payment or forfeiture of gratuity, the HR cannot also interfere in the functioning and principles of accouting of transactions by the Accounts Department.
3rd December 2015 From India, Delhi
Dear Sridharan,
By your statement, do you really mean that the employer becomes duty bound to pay the gratuity even if that violates the law of the land on the payment of gratuity, if the employer has included the element of gratuity in the CTC of an employee, and also that to discharge the so called duty the employer is totally free to violate any law of the land?
If so, you please like to quote the appropriate section of the relevant law on that issue. That may help me enhance my knowledge, including that of other members of the forum.
3rd December 2015 From India, Delhi
I humbly disagree with some of the experts here. (some have already disagreed like me, in this thread) Payment of gratuity may be illegal if the employee has not completed 5 years of continuous service, but having committed to treat it as part of the employee cost to company, is it not correct to expect the employer to refund the cost so committed by him through the appointment letter, even by calling it something else? After all he has committed it through the appointment letter. I have even come across a case where the gratuity was paid after completion of even 4 years because it was included in CTC...
He may make it subject to Income tax though.
Further please enlighten me if the gratuity act expressly bars payment of gratuity when the employee does not complete 5 years. True it makes the employer duty bound to make the payment after 5 year of service. Which section bars it without completion of 5 years in case employer still wants to pay it? - A S Bhat
3rd December 2015 From India, Pune
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To my knowledge NO DEDUCTION from salary of employees being effected by any employer. This component is only shown/included in the CTC to the extent of eligibility every year to project the sum of annual cost of every employee to the Co on accrual basis. Neither gratuity is payable on monthly basis nor annual basis like salary. If somebody deducting from salary it's illegal.
3rd December 2015 From India, Bangalore
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Is't illegal if any employer choose to pay gratuity to employees even if they didn't complete 5 yrs.of continuous service ? I think it's not so. Definitely there is NO BAR. It would be fair enough and appreciate if some employer pay gratuity for <5 yrs. of service as mentioned. Of course claiming deduction under IT act is a different matter.
3rd December 2015 From India, Bangalore
-------------

I won't/never say the employer violates the law if they don't pay gratuity to those leaving in <5 yrs. as it's not legally payable. But when in CTC situation an employee is given to understand that he earns gratuity every year but not paid to him/her either monthly or annually or even at the time of leaving. Thus meaning, where does the money gone if not paid ? Further, the very same employer either remits to the LIC or any other underwriters who administer their gratuity scheme the amount periodically or make a provision in their A/cs every year under the Head "Retirement Benefits/Cost to Employees" (either actuarial basis as certified by an Actuary or any other method being followed in respect of gratuity provisions as per Accounting Standard-15) together with

(a) Provident fund

(b) Superannuation/pension

(c) Gratuity

(d) Leave encashment benefit on retirement

(e) Post-retirement health and welfare schemes

(f) Other retirement benefits.

I only wish to make a distinction among the employers, one who follows CTC and others conventional Pay package limiting to basic,DA and other allowances paid monthly. In non CTC group employees, except those curious lot, one does not even know what is gratuity, how much and when they'll be paid as theirs' not inflated with gratuity component. So he/she leaves with not much to bother. Whereas a CTC employee leaves without gratuity payment, he/she knows very much how much they lose, roughly 2 1/2 months salary, which hurts. This money is retained by the employer !. ?? Of course this is not illegal either. But we feel the difference in these concepts.
3rd December 2015 From India, Bangalore
There is no law which bans the employer to pay anything before the completion of the period or in other words more than that is mentioned in the law.
The only difference, is how can you legally say, that the employer needs to pay the same compulsorily? There are many employer who go by the law. So the payment of Gratuity to be paid before 5 years is completely an individual companies decision.
The law says that it must be paid on continuous completion of the 5 years of service.
Also, no law says, that what is said in the CTC, needs to be paid. As if that was the case, so many employers put performance pay in the CTC and pay only as per the calculation (the actual amt. paid is much low), so then similarly like Gratuity, the employers needs to pay the PP as what is mentioned in the CTC and not otherwise.
Difference of Opinion will be there, as it is just how the company looks at the bottom line.
Regards,
Ashutosh Thakre
3rd December 2015 From India, Mumbai
Hai The Company is paying gratuity after completion of five years to their staffs. So the gratuity amount is shown in the CTC by the Employer.
3rd December 2015 From India, Coimbatore
Dear Shri Bhat,
Appointment letter cannot supercede the provisions of law of the land. If you or any aggrieved employee believes that the gratuity element, if included in the appointment letter, can well approach the competent court of law even for experiment sake and should get a landmark judgment, if the courts agree that the appointment letter can supercede the provisions of law. If that happens, that can also prove benficial to other employees in the industry.
3rd December 2015 From India, Delhi
Hi Sanjeev, Thanks to raise the question in detail , i am also in confusion on this point while offering in CTC Concept. requesting you other senior members to clarify on this .
3rd December 2015 From India, Hyderabad
------------
No doubt, certainly it's payable when once the reappointed/reengaged "employee" has put in a minimum of 5 yrs of continuous service on this fresh appointment based on his new salary (last pay drawn on leaving).
3rd December 2015 From India, Bangalore
As per new amendment in gratuity act, if an employee has completed 4 years 240 days in his organisation then an employee is eligible for gratuity.
4th December 2015 From India, Delhi
Dear Mr. A. Thakare & Mr. Dhingra
Once an appointment letter on CTC basis is accepted by the candidate and he joins the company it is a contract, enforceable by law. (Contract Act). Further performance pay depends on a formula then it is difficult for management to manipulate it, but where it is indicative, it can be subjective. Gratuaity calculation included in CTC is not subjective but is capable of being calculated. All I say is if the CTC includes gratuity and employee leaves in less than 5 years, then employer should compensate him with suitable amount for loss of gratuity included in CTC. If he does not it will be dishonest or unethical.
Filing suit or not is the choice of the employee; considering time taken & expensive, his weakness vis-a-vis fighting a stronger opponent. .....Regards - A S Bhat
4th December 2015 From India, Pune
Further if the employer has included a cost (in this case gratuity) in one’s appointment letter by way of CTC, he might as well incur instead of taking advantage of gratuity act - A S Bhat
4th December 2015 From India, Pune
Dear Mr Dhingra Sir: It is true that no section in the Act requiring the employer to pay the Gratuity to his employees for the service rendered by them less than 5 years. Such brainstorming session on the CTC aspect would be a healthy discussion in this network among the legal experts like you. Hence such idea of mine is posted for discussion. Further more when this matter is come to the attention of court of law, I feel, the court may take a cognizance of this issue for arriving at a solution.
4th December 2015 From India, Mumbai
Dear All,
I disagree with that the employers take benefit of the act and do not pay gratuity. Also there is noting unethical or dishonest in that.
Having the same put in the CTC is mere a clear way of showing that the employer is investing for the employee, so that if he stays for more then 5 years, not only the employer but the employee can also enjoy the fruits of having stayed with the company for a long term. Paying gratuity after 5 years is so that both the parties have had a win-win situation.
Saying that the payment is to be given, we are accepting, that the relationship of employee and employer is only legal and for a very very short period.
Regards,
Ashutosh Thakre
4th December 2015 From India, Mumbai
Dear Mr. Dhingra,
"As I know, Annual CTC is not a legal term. It is designed by the companies to attract & allure the new joinees. Therefore, company go on adding any type of expenditure like gratuity which is tenable on separation after 5 years of continuous service. At the start of the job, no tenure of separation can be decided. Hence, how can we say this is expenditure or accrued expenditure."
In the above lines/concept, I nowhere mentioned that this is illegal concept but I wish to say that this is not legislated concept but designed by the companies and accordingly concept is not homogeneous in all companies.
Dear Mr. Thakre,
I refer to your latest post. I wish to point out that if an employee renders service for more than 5 years and gratuity is not mentioned in CTC, then his employer will not pay him gratuity?
4th December 2015 From India, Panipat
Dear Mr. Gupta,
Thank You for making that point. Its the other side of the coin, so if the employee completes 5 years and leaves the company, then can you say that the employee is taking benefit of the act for monetary gains. Like wise, why has the employer to always take a blame that he is unethical for non payment.
So if it is mandatory for the employer to pay, even if it is not in the CTC, as legally said, then where it is legally said that we need to pay it before completion of the said period.
So, my point, if the employee can hide behind the law, what's wrong if the employer does it.
Regards,
Ashutosh Thakre
4th December 2015 From India, Mumbai
Dear Mr. Thakre,
You will agree to my point that Appointment Letter with CTC is enforceable under Civil Laws for all employees(For 'WORKMAN' civil laws and ID Act, both option). Thus all terms & Conditions of Appointment Letter including CTC including gratuity can be enforced through Civil Laws. Under Civil Laws there are no terms & conditions for gratuity payment rather can be enforced as per Appointment Letter and PGA can not be enforced through civil laws.
Gratuity payment can also be implemented through PGA which in itself is a complete code.
In my opinion, this way while mentioning Gratuity Payment in CTC, we are putting ourselves under two legislation.
Kindly opine.
Thanks,
V K Gupta
5th December 2015 From India, Panipat
Dear Mr. Gupta,
Point taken. Can you share the cases where the Gratuity was payable to the employee, under the Civil Law, even before completion of 5 years. This will make the point proven and conclusive.
Regards,
Ashutosh Thakre
5th December 2015 From India, Mumbai
As CTC Means it is total cost incurred by the company to hire a employee, so Gratuity is also a part of this means it is a cost incurred by the employer on behalf of employeee. so it can be included in CTC
5th December 2015 From India, undefined
Dear Shri Bhat,

Compensation and gratuity are two different terms. Law recognizes gratuity under the Payment of Gratuity Act payable under the prescribed conditions. The Payment of Gratuity Act, does not recognize payment of any type of compensation, if included in CTC and shown in the offer/ appointment letter in the name of gratuity. However, the employee is free to move the court of law to recover any other type of compensation under the Contract Act, if he desires so, but not in the name of the gratuity. However that depends solely on convincing of the judge, if he agrees to get the employee paid in the name of compensation in some other name in lieu of the elements of gratuity included in the CTC. But still, even in that event, he should also be ready to face trials on appeals in higher courts by the employer. In that case, the employee would be much more on disadvantage due to trial costs, rather than receipt of element of gratuity in terms of CTC.

So, we have to see the practical aspects, not the theortical aspects, as it cannot be taken as a case of debate on administrative or management aspect, but on the implications of law and pros & cons of employee's fight for the claim of gratuity part of the CTC. Rest depends upon the wisdom of individual to individual.
6th December 2015 From India, Delhi

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