Ours is a private limited company and supposed to settle the gratuity claim of one of our employee. We do not have DA included in the pay-slip but have among other allowances, Special Allowances, HRA etc. Should the calculation of gratuity be restricted to basic salary alone or any other allowance can be added ?
From India, Hyderabad
Srinath Sai Ram
Hr Manager
Compliance Manager
+2 Others

Srinath Sai Ram

Dear Aks, The calculation of Gratuity will be on Basic +DA+VDA. All other allowances with other nomenclature will not be taken in to consideration
From India, New Delhi

Few States like Maharashtra declare half yearly DA as Special Allowance. If an employee contests that special allowance should be considered in calculation of gratuity, the Controlling Authority may pass order to that effect.
If an org wants to play safe, never have any allowance that will be termed as Special Allowance.

From India, Mumbai

Dear AKS
Please go through the judgment of Supreme Court in case of Straw Board Manufacturing Co. Ltd. vs Its Workmen reported in AIR 1970 SC 941/ 1977 SCR (3) 91. In this case the Court held that in Payment of gratuity Act, not Basic wages but Gross wages inclusive of D.A. have been taken as the basis and clarified that wages will mean and include Basic Wages and D.A. and nothing else.
I hope this clarifies your query. If you want to know more, you can go through my article " An overview of wages under the Payment of Gratuity Act, 1972" published in Volume 154- September 15, 2017 -Part 18 of Indian Factories and Labour Reports.
S. Sensharma
Industrial Law Consultant, Meerut

From India, undefined

Dear Friend, The gratuity is calculated on Basic and DA inclusively. Where DA component is not there, the calculation to be done on Basic only.
From India, Mumbai

In the absence of Dearness Allowance , some companies pay what is known as Special allowance . One company's typical wage structure comprises a) Basic Salary , b) HRA and c) Special Allowance .
For example , an employee's salary package is below
Basic Salary : Rs 40,000
HRA : Rs 20,000
Special Allowance : Rs 50,000
Gross : Rs 1,10,000
In this case , the employer conveniently term a major part of salary as Special Allow ace to circumvent statutory payments like PF ,Gratuity etc taking vantage of the definition of wages/sallies under the relevant statute .
In such a case, whether an employee claim special allowance as also part of salary for the purpose of calculation of gratuity .
May the enlightened members throw their views and also present any case law in this regard

From India, Chennai

If salary is paid as consolidated without breakups,gratuity shall be paid on the basis of that consolidated amount VARGHESE MATHEW Tvm-9961266966
From India, Thiruvananthapuram

Dear AKS 17 ,
1)Wages definition under payment of gratuity act 1972
Section 2 (s) of Payment of Gratuity act defines “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
2)The intent and objective of the this statute should be to exclude from the purview of the definition of wages only such payments like Bonus , HRA, Overtime wages and other allowances . The Special Allowance may fit into exclusion category as an allowance from the definition of wages as long as this payment remains to at a reasonable percentage of Basic salary or similar to HRA ,Bonus,Over time which are restrictively linked to certain percentage or norms in accordance with the respective statutes . In the case of Special Allowance which is abnormally high and greater than the very Basic salary , it is an ostensible act on the part of employers to circumvent the statute and thereby restrict / deprive the enhanced monetary benefits due to employees arising out of provisions of the Payment of Gratuity Act 1972 by taking shelter under the definition of wages under the statute .
3)The payment of gratuity being a social security legislation , a more broader and benevolent interpretation of the definition of wages has to to be taken..
In the current situation , it is permissible/open to an employer to fix the salary structure of an employee who is designated as an Executive in a supervisory cadre, as below
Basic Pay : 36,000( 45%)
HRA : 18,000 ( 22.5%)
SPECIAL Allowance 26,000( 32.5%)
Gross salary : Rs 80,000/ P.M
4)Whilst in the absence of Dearness Allowance which is an definite ingredient of salary /wages under the payment of Gratuity act 1972 essentially meant to secure and further the standard of living of the employee, it is an unfair and grossly exploitative on the part of the employers to allocate major portion of gross salary ( say more than 30% of gross salary) detrimental to the interests of the employee’s terminal dues / retirement benefit .
5)In should be held that any such Any allowance irrespective of its nomenclature which is fixed at an unreasonable and illogical quantum should be held to be dubious and subterfuge and that such allowances ( irrespective of its nomenclature ) should be an essential ingredient of salary /Wages as defined under the payment of Gratuity act 1972 and hence should be reckoned for the calculation of gratuity .
6)It may not be out of context to highlight here that in certain negotiated wage settlements , the managements /employers do agree in response to demands of union to treat certain wage components like ad-hoc, special Allowance etc as part of basic wages for the purpose of reckoning the statutory benefits like provident funds, Overtime, gratuity act . Whilst such agreements are possible through direct negotiation at bipartite /tripartite forum ,why not such special allowance be deprived to those employees in supervisory /executive cadres who are neither bargainable employees nor unionized.
7)It is an acceptable practice in industry fix the Basic salary and Dearness allowances applicable to union employees at anything between 60% and 90% depending upon the outcome of wage negotiation between employers and workmen .
8)The objective of this fixation of salary structure is conscious decisions between parties aimed at ensuring employees’ statutory benefits like OT,PF , gratuity etc. This being so, only a particular category of employees in an Establishment cannot be allowed to denied the benefit whilst the statute seeks to extend the benefit of gratuity all employees.
9)As the statute ( Payment of gratuity act 1972) does not make a distinction between employees of bargainable employees and supervisory / executive employee ( as per broad definition of employee under the act, it is gross erroneous and devoid of natural justice to keep off special allowance from the ambit of wages under teh statute with respect to supervisory/ executive/managerial cadres who are otherwise eligible employees for receiving gratuity under the statute .
Therefore the dual standards in dispensation of gratuity is arbitrary , capricious and against the spirit of the provisions of the the act.
Any aggrieved member can make the aforesaid submissions before the controlling authority to claim the benefit of special Allowance being reckoned as wages/salary for the purpose of calculation o f gratuity

From India, Chennai

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