Umakanthan53
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Sumitk.saxena
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Korgaonkar K A
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Thread Started by #OsourceHR

Dear Member, Is it legal to show gratuity as a part of CTC?
7th April 2017 From India, Mumbai
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.
7th April 2017 From India, Mumbai
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
7th April 2017 From India, Mumbai
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).
8th April 2017 From India, Pune
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.
9th April 2017 From India, Salem
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.
9th April 2017 From India, Mumbai
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.
9th April 2017 From India, Kolkata
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.
9th April 2017 From India, Salem
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
9th April 2017 From India, Jaipur
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.
9th April 2017 From India, Salem
According to one of the government circular, it can not be. I will find and attach it here asap.
10th April 2017 From India, Ahmadabad
Dear colleagues,
The concept of CTC is coined by the employer to determine what it costs to hire an employee.The question of legality or otherwise is irrelevant and not applicable.The payment of gratuity prior to law and after is meant to induce employees to stay longer. But if he leaves before completing five year's service, he chooses to forgo gratuity. It is not employer's fault.Therfore. including gratuity in CTC is well within employer's prerogative.
Regards
V.L.Nagarkar
HR-CONSULTANT
10th April 2017 From India, Mumbai
Dear Mr Amit,
To the best of my undertanding you are saying that once the gratuity is considered in CTC, while giving the emloyment to the new employee, then the said amount should be given to the said employee irrespective of whether he has complited 5 years or not.
Principally it should be paid, however, certain industries do not pay, under the shelter of 5 years condition.
10th April 2017 From India, Hyderabad
Employees should not be attracted by the amount of CTC.They should ignore the amounts shown as employers contribution to PF,ESI,Gratuity,conveyance food ,etc.They should consider the amounts other than employers contribution or expenses for employees as the salary.Then the question of refund of gratuity won't arise.The CTC is not recognised as legal wage under any labour legislation in India.
11th April 2017 From India, Thiruvananthapuram
Agreed with KORGAONKAR K A views that Gratuity is Part of CTC, what payment either directly or indiectly made by the company in name of employee should be added & part of CTC but payment is only subject to completion of term & conditions applicable.
Thanks & Regards,
From,
Sumit Kumar Saxena
11th April 2017 From India, Ghaziabad
The CTC has got direct bearing on Indian Accounting Standard 19 issued by the Instt. of Chartered Accountants/Govt of India which deals with Employee related costs. Every employer should account for all employee related expenses/cost relevant to the year in the respective year’s accounts, whether paid or not but on accrual basis in accordance with the AS-19. On the same principle the CTC also being computed in many of the firms. Ofcourse various methodology is being followed by the employers as per their own past practices, HR policies, pattern generally followed by other cos in the same field. It is possible they show a few items in CTC exchanged with the candidates which may vary from what is accounted in their accounts as “Employees’ Benefits”. It’s also possible many a time varies from person to person. Since CTC concept is not present and mandatory as per Payment of Wages Act etc no one can argue what is IN and what is kept OUTside the ambit of CTC. The extract from the AS-19 is reproduced here for the benefit of members as a ready ref. Detailed AS is attached.

xxxxx xxxxxxxxxx

Indian Accounting Standard (Ind AS) 19 Employee Benefits

5) Employee benefits include:

(a) short-term employee benefits, such as the following, if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services: (i) wages, salaries and social security contributions;

(ii) paid annual leave and paid sick leave;

(iii) profit-sharing and bonuses; and

(iv) non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;

(b) post-employment benefits, such as the following:

(i) retirement benefits (eg pensions and lump sum payments on retirement); and

(ii) other post-employment benefits, such as post-employment life insurance and postemployment medical care;

(c) other long-term employee benefits, such as the following:

(i) long-term paid absences such as long-service leave or sabbatical leave;

(ii) jubilee or other long-service benefits; and (iii) long-term disability benefits; and

(d) termination benefits.

6) Employee benefits include benefits provided either to employees or to their dependants or beneficiaries and may be settled by payments (or the provision of goods or services) made either directly to the employees, to their spouses, children or other dependants or to others, such as insurance companies.

7) An employee may provide services to an entity on a full-time, part-time, permanent, casual or temporary basis. For the purpose of this Standard, employees include directors and other management personnel.

Definitions:

8) The following terms are used in this Standard with the meanings specified:

Definitions of employee benefits Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

Post-employment benefits are employee benefits (other than termination benefits and shortterm employee benefits) that are payable after the completion of employment.

Other long-term employee benefits are all employee benefits other than short-term employee benefits, post-employment benefits and termination benefits.

Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either:

(a) an entity’s decision to terminate an employee’s employment before the normal retirement date; or (b) an employee’s decision to accept an offer of benefits in exchange for the termination of employment. Xxxxxxxx xxxxxxxxxxxxxxxxxx
12th April 2017 From India, Bangalore

Attached Files
Membership is required for download. Create An Account First
File Type: pdf Accounting Std. AS 19.pdf (530.5 KB, 90 views)

Dear CTC itself is not a legal word, so far its depend company to company what components they add in CTC or not.
14th April 2017 From India, Faridabad
The Gratuity is shown in CTC and if an employee leaves the company, before 5 years period, whether the employee should pay the accrued amount or not !
22nd October 2017 From Spain, Burgos
Dear MURALI_D02,
Please go through the below given links and find out the answer to your query. All the best.
https://www.google.com/url?q=https:/...H3CnXfZdNF_GSI
https://www.google.com/url?q=https:/...RJTyh8fuiy4WuO
https://www.google.com/url?q=https:/...2YKPzfk8pS_oup
https://www.google.com/url?q=https:/...REIxk35L13YGqo
22nd October 2017 From India, Mumbai
Dear Murali, Hope your query stands clarified from the reply/attachments give by Korgaonkar Sir. However to put the record straight, as per the Section 4(1) of the Payment of Gratuity Act 1972, the liability to pay gratuity arises only after continuous service of five years. In other words before the completion of the eligibility period of five years, even if the CTC mentions gratuity as having accrued all along, there is NO legal liability to pay gratuity. But the employer can still pay the accrued amount as a welfare measure, but the Income Tax exemption would not be there and it will be treated as an income to the recipient.
PS. Pl be mindful before sending any query, The Gratuity is shown in CTC and if an employee leaves the company, before 5 years period, whether the employee (sic.. ) should pay the accrued amount or not
23rd October 2017 From India, Mumbai
Dear Friend,
The business is the game of cost, which finally end up with either profit or loss. The CTC is nothing but hypothetical cost it includes every thing we receive directly or indirectly this may be in cash or kind or services.
The Gratuity is one of the cost has to be incurred per employee by the business house on complition of terms as envisaged under the law/act. This amount is being paid by the business house but not a charity by the propritor.
Now whether the employee will get any amount, if leaves job prior to eligibility for gratuity. Is there any deduction on his monthly salary towards Gratuity? If No, then it is No.
Hope this will clarify your doubts.
24th October 2017 From India, Mumbai
Dear all,
Ofcourse its repeated subject matter, but still I feel there should be a legislation to favour the employees so that taking shelter under the provisions of the Gratuity Act should be done away with.
Its obvious that every employee's gratuity due on completion of one year of continuous service is taken for the purpose of CTC and accounted in the firm's books as a 'Liability towards the employee' on accrual basis. But at the same time when the very same employee leaves the firm without completing 5 yrs of continuous service, he/she is neither paid what gratuity is accounted for due for his service nor transferred to the subsequent employer like EPF for the simple reason that Gratuity Act does provide for such an arrangement. Thus the employer writes back the unpaid gratuity which in effect "an unjust enrichment" in the eye of law and gets the benefit. Like this the employee is deprived of his just due which is against the principle of natural justice. I strongly feel all the labour/employees organisations should write to the Govt.of India and build up a strong case for bringing in an amendment to this provision paving the way atleast to transfer the accrued gratuity to the next employer if an when he/she joins another firm/employer like being done in case of EPF.
20th November 2017 From India, Bangalore
Dear Kumar ji,
Already there is a demand by unions to remove the conditions asking (i)to have at least 10 employees in an establishment and (ii) minimum five years of service for payment of gratuity.
Already there are recommendations and proposal for to do away with 5 years service clause for eligibility of Gratuity and transfer of gratuity benefit when an employee switches his jobs.
As per draft code on Social Security and Welfare, Gratuity will be contributory. There will be a contribution of 2% towards Gratuity by every employee and accumulation will transfer when employee switches the job.
20th November 2017 From India, Mumbai
We have been reading certain modifications in the gratuity administration both in govt. and pvt.sector by proposing automatic revision in the upper limit in gratuity linking with wage levels by a new formula. As of now the limit has been enhanced from 10 lakhs to 20 lakhs. And again in Pay Commission recommendations this formula is being highlighted for automatic revision. Learned members may discuss further on this. However I could not see anything tangible taking place on lines indicated as above by Mr.Keshav.
3rd January 2018 From India, Bangalore
If the Gratuity is considered as CTC and Salary is reduced to the extent of Gratuity deduction, No employee will ever want to complete 5 years for the sake of extra benefit of Gratuity, as and when an employee is leaving the company the deduction will automatically be credited in FnF as Exgratia. Doesn't the Gratuity payment looses its value as it doesn't even matter if its paid after 5 years or before 5 years.
5th June 2018 From India, Bengaluru
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit of his exit from the company.
(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:
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 the Company and not an employee, hence Gratuity cannot be a part of CTC.
To understand this part, let us take an Example,
Mr. A Joins the Organization with a Basic Pay of Rs. 26,000/- per month and monthly CTC of 50,000/-. Gratuity Components is not a part of CTC. Assuming that the Expected Salary Increase in Basic Salary is assumed to be 10% p.a.
Now Gratuity Payments for the next 5 years will be:-
On Completion of 1 Yr - (15/26)* 28,600*1 = 16,500/-
On Completion of 2 Yrs - (15/26)*31,460*2 = 36,300/-
On Completion of 3 Yrs - (15/26)*34,606*3 = 59,895/-
On Completion of 4 Yrs - (15/26)*38,067*4 = 87,847/-
On Completion of 5 Yrs - (15/26)*41,873*5 = 1,20,788/-
Now for making the payment of gratuity, Company has 2 options :
(i) **“Pay as you go option” **- Where the company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when Mr. A leaves the organization, company pay gratuity from their **resources** and get the tax benefit for the gratuity paid.
(ii) **“Funding Option”** - In this option, the Company decides to Setup an Approved Gratuity Trust. The Investment of the Company is either "Self Managed" or “ Managed by Insurance Company”. Company contribute the annual contribution in this Gratuity Trust and get the Tax Benefits. In this case, when Mr. A will leave the company, gratuity will be to Mr. A from the Gratuity Trust.
In both above cases, Gratuity is paid by the Employer from his** own resource.**
In case you need more clarification in the above matter then you may visit my blog at (http://www.gratuityconsultant.blogspot.com)
22nd February 2019 From India, Delhi
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