About Gratuity - Organization Planning - CiteHR
Madhu.T.K
Industrial Relations And Labour Laws
Kangovikishore
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Nathrao
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Hi , I am planning to implement Gratuity fund in my Organization , Could you please clarify the following doubts ?
1- Is Gratuity is a part of employee CTC ? If yes can we show it in payslip as deduction ?
2- Is it mandatory for the employer to maintain a gratuity Fund with an Insurance company ?
3-We have almost 50 to 60 employees , Very few employees completes five years of service period with the organization so my employer wants to pay them directly at the time of separation . Not showing interest to maintain a gratuity scheme with any other Organization . Is it correct ?
Earliest reply will be highly appreciable , Thanks ....
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Topic of gratuity has been well covered in this forum.
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Secondly have you read Payment of Gratuity Act 1972?
Have you read payment of Gratuity rules,1972?
Kindly go through these vital laws and then if you still have specific doubts,learned members will clarify.
Hai Kt017

1. Gratuity is considered part of CTC by employers because they either make a provision for payment of Gratuity or contribute to Gratuity fund.

2. It's not mandatory for employers to maintain a Gratuity fund it's only optional.

3. Your employer can opt to pay Gratuity to employees directly.

4. The only advantage of maintaining a Gratuity fund is if you pay a marginal risk premium, Gratuity is paid by the insurance company in the event the employee dies while in employment considering the service from his Date of Joining till the date he/she would have superannuated from service if he/ she had been alive.

Normally if the employer pays Gratuity directly it will be restricted from his Date of Joining till his date of death.

Please remember the insurance companies pay Gratuity only from the fund contributed by you each year. So if the Gratuity payable is greater than the fund maintained by you, the insurance companies will deny payment of Gratuity. In other words the insurance companies make Gratuity payment to the extent fund is being maintained with it by the employer.

For this purpose the insurance company computes an actuarial valuation every year and advises the employer to top up the fund to ensure Gratuity payments to all employees without any hassle.

Regards

M.V.Kannan
1. No Gratuity is not a part of CTC, No we cannot show it pay slip.
2. Yes, it is mandatory to buy the Gratuity policy from LIC or any other authorized insurance company.
3. No it is not correct, we have to maintain the Gratuity fund as per the Labour Department, irrespective of any employee completes 5 years or not, the day an employee joins the organisation, he has to be included in the Gratuity scheme by taking Form F(nomination). Every month Form 5 and Form 10 should be submitted to the insurance company to update the employee records.
Gratuity may be a part of CTC. But it should not be shown in the payslip and not deductible from the salary.
It is not mandatory to maintain the gratuity fund with the third parties like LIC etc. It is optional to the employer.
Thirdly, your employer is correct. It can be paid directly by the employer to the employee at the time of separation , if he fulfill the other conditions as per Payment of Gratuity act.
Hi,
I see the thread on the Gratuity Payment. Can gratuity amount be shown in the salary break-up of CTC, as this is also the part of employer payment, when it comes to contribution from the company to the employee?
Please advise
Regards
Swaminathan R
Gratuity contribution cannot be shown in payslip but in my opinion can be shown as part of CTC computation for reasons already explained.
I reiterate it's not mandatory to maintain a policy for Gratuity with an insurance company. If the employer opts to pay directly he can do so.
Regards
M.V.Kannan
""
I reiterate it's not mandatory to maintain a policy for Gratuity with an insurance company. If the employer opts to pay directly he can do so.""
Section 4 A of Gratuity act makes it mandatory to have insurance.
Kindly clarify.
The section 4A of the Payment of Gratuity Act provides for compulsory insurance of gratuity fund. But the notification of making this section mandatory should come from the appropriate government. I understand that many states are yet to come out with such notification. In states where there does not exist such notification making the gratuity fund linked to LIC, it is not mandatory. The procedures under the accounting practices would be sufficient. Even in such states wherein compulsory insurance of gratuity fund is enforced, the appropriate government shall exempt organisations who have been maintaining an approved gratuity fund and those employing not less than 500 employees having an approved gratuity fund from the operation of this section. However, linking of gratuity to LIC's death cum gratuity scheme is beneficial to the employer and employees due to various reasons like, the employer will be able to pay gratuity without affecting its working capital, the dependants of a deceased employee will be able to get superannuation gratuity based on his date of superannuation, provided the same is opted by the employer etc.

If your state government has not notified the effective date of enforcement of section 4A, you can continue to have your own gratuity fund.

On the other hand, if the state government has notified it as enforceable, you have to follow it. If the practice is that your employees leave before being qualified to get gratuity, the amount invested by the company in the gratuity fund will become asset for the company only and any addition to the fund will be made only after deciding the probable liability in terms of gratuity in the coming year(s). Therefore, do not take the fund as an obligation only.

Madhu.T.K
Section 4A in The Payment of Gratuity Act, 1972

19 [4A. Compulsory insurance.—

(1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer: Provided that different dates may be appointed for different establishments or class of establishments or for different areas.

(2) The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).
On this basis I made the statement
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