Umakanthan53
Labour Law & Hr Consultant
KK!HR
Management Consultancy
Sumitk.saxena
Service/manager-hr
Maheshfaridabad
Hr Manager
TIKARAM CHAUDHARY
Gratuity Fund Formation Consultant
Sanju4883
Hr Manager
Korgaonkar K A
Ba,llb,mpm,dir&pm,dll&lw,d.cyber
Loginmiraclelogistics
Asso.prof.(commerce & Management) Pg
Nagarkar Vinayak L
Hr-consultant
Yrshirke
Hr / Ir
+3 Others

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Dear Member, Is it legal to show gratuity as a part of CTC?
Dear OSOURCEHR,
You need to first understand what is CTC.
CTC is a concept. It is a cost to company on employee.
Employer has to make provision on Gratuity payment of every employee employed by him. He has to create a fund for Gratuity or to go for Gratuity Policy for which he has to pay premium. Therefore it is a cost to him and accordingly he can add this cost in CTC. There is no wrong.
However, question may come over here that if employee leaves his service before completing 5 years, the amount taken into CTC towards gratuity is to be refunded to employee or not.
In draft code on Social Security, there is a provision of contribution by employer towards Gratuity Fund.

Dear Friend , Earlier, say early 2000 ,Gratuity was not part of CTC .But afterwords Industries add in the Package so that Employee will stay back . Regards , Y.R.Shirke
Gratuity is a statutory right of employee whoever completes 5 years in the same organization, and is a terminal benefit. The cost is to be born by employer and not employee. Gratuity can not be a part of CTC. If company is making it part of CTC you can agitate before the controlling authority. Or even legal notice from one ( common ) lawyer of all employees to company might be sufficient to drill sense into it and to get the entire payment released. It may be treated as minor fraud. However you shall be eligible to get the amount even if you have not completed 5 years. The amount paid by company to Group Gratuity Insurance Scheme is accumulated and LIC pays interest on it. This fund is created so as to meet the payment of gratuity to employees in case of death, disability. If this fund is not created company has to bear the cost from its own resources. Moreover in case of termination/resignation of eligible employee the payment is made from the fund and rest is carried forward and keeps on earning interest. Moreover after 5 years company shall make a payment as per formulae of the gratuity, while if you consider the monthly contributions (shown as part of CTC or collected from employee) the amount shall be more than amount calculated by gratuity formulae. The companies which make gratuity as part of CTC pay the amount as Tax rebated/Ex. Gracia in FNF settlement even if employee leaves before 5 years ( or 4Y8M/ 6M as the case may be).
Dear friends,

The query is about the legality of showing gratuity as part of CTC of an employee or otherwise. In the first place, the element of legality or illegality comes into play only when anything is done or not done respectively according to the provisions of any Law, either express or implied. As rightly observed by our learned member Mr.Korgaonkar, CTC is a concept adopted by the employer in the matter of compensation package to his employees. It is simply an index or accounting aid showing the overall expenses incurred by the employer per employee per annum in the matter of wage/salary fixation or any negotiation connected therewith. Gratuity, being a terminal benefit legally payable to an employee subject to the fulfilment of certain conditions of his/her service as well as exit is certainly a part of the cost of employment incurred by the employer. So, adding the annual contribution of gratuity to CTC can not be an infraction of any sort either legal or ethical in relation to the realm of employment in as much as no monetary contribution is made by the employee. Even the statutorily-mandated employee contribution like ESIC, EPF does not affect the status of employer's contribution in this regard as an expense incurred by him.

Dear Umakanthan ji,
Thank you very much for your support to my contention.
There are very few members in this forum who can be counted on fingers who write logically and correctly. You are one of them.
I feel regret some time responding the queries of the members. But when I get support from members like you, I get boosted.
I also feel regret to notice that in HR fraternity many of the brothers and sisters are not able to distinguish correctly between Salary and CTC. In this forum, we discussed a lot on CTC.

I still do not get it. Where in the Gratuity Act does it mention that it can be a part of the CTC? ANyhow, I believe I am getting ripped off.
Dear Vishal,
I think that you would not have any difficulty in understanding the fact that CTC is a conceptual aid to determine or assess the employer's over all financial liability toward every hired position or job including salaries/wages and all other fringe benefits payable per employee per year. The various heads of such payments comprise of all statutory and non-statutory items. Every statutory payment both direct and indirect like employer's contribution to EPF, ESI etc., including its mode and method has to be done not less than the norms prescribed in the respective Statute. It is not the concern of the statute to assess the overall financial commitment of the employers. You will not find the term " Cost To Company" in any Labour Law. It is only a presumptive assessment for the guidance of the employer and employees concerned for deciding the acceptable compensation package.

Dear Umakanthan sir,
If CTC consist the Gratuity and if employee has not completed the 5 year
Of service period then in this scenario
Weather the said employee will not to get
the gratuity irrespective of its consistance
In CTC
Pls clarify...
Thanks
Amit

Dear Amit,
CTC comprises of all expenses incurred by the employer towards the employment of the employee for his retention on the employment as well as on the normal termination of his employment. As you are well aware, gratuity is a one time- lumpsum- terminal benefit strictly governed by the provisions of the Payment of Gratuity Act,1972. Barring the cases of death and disablement, the eligibility for gratuity on the termination of employment emanates from the completition of continuous service of not less than five years. Sec.4-A of the Act provides for compulsory insurance for gratuity. Here the annual premium for insurance is calculated only on actuarial basis by the insurer and paid by the employer.. Therefore, automatically it becomes part of the CTC irrespective of the factum of the employee being ineligible to receive it for want of minimum qualifying service.


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