Umakanthan53
Labour Law & Hr Consultant
Pan Singh Dangwal
Joint Manager
Korgaonkar K A
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Management Consultancy
Mkpande1
Consultant
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Thread Started by #poonam-verma1

Is paying gratuity as a monthly component in salary instead of lump sum amount at the end of service a possibility as per the law?
What could be the legal implications?
29th April 2018 From India, Chandigarh
Gratuity is to be paid on end of service or retirement, exit on completion of years of service as laid down by Payment of Gratuity Act.
Why has the thought of monthly payment come up?
Suppose a person exits after 2 years of service?
He is not entitled for gratuity.
Read the original act and then you will understand concept of Gratuity.
29th April 2018 From India, Pune
I agree with you. I did read the gratuity act, however just wanted to find out the feasibility and consequences of this kind of payout as I am doubtful myself. Wanted to get some advice from this experienced group.
29th April 2018 From India, Chandigarh
Gratuity is payable only after the service comes to an end. Paying gratuity every month militates against the very concept of gratuity itself. As far as CTC is concerned, gratuity component could be factored in but actual payment is neither helpful legally in discharging the liability nor is it a practice in the industry.
30th April 2018 From India, Mumbai
Dear friend from Chandigarh,
Provident Fund, Pension and Gratuity are the triple terminal benefits provided to the working class as measures of social security when they become jobless due to various reasons like old age, ill health, redundancy, resignation etc. If you critically analyze these concepts, their maturity of benefits is always interlinked with the cessation of the beneficiary's employment beyond certain age or certain predetermined number of years of service. Therefore, the idea of periodical payment of Gratuity while the incumbent is still in service, though seemingly fanciful, will certainly fail to achieve the purpose for which it was primarily conceptualized.
30th April 2018 From India, Salem
Mr. Umakanthan. M
Additional Commissioner of Labour (RTD)
Is the Payment of Gratuity Act being revised by the Govt.; where the minimum qualifying service for payment of gratuity is being reduced from 5 Years to ___ ?!
30th April 2018 From India, Pune
Talk of reducing period to 3 years is being heard.
Nothing official yet about this.
Cost of running an industry is increasing.
30th April 2018 From India, Pune
Dear Sandeep,
I've no idea about such a proposal. Already the amendment to the Rules under the IESO Act,1946 has diluted the concept of minimum qualifying service in respect of FTC employment in the matter of payment of Gratuity to such employees. So, anything may happen including the scrapping of qualifying service.
30th April 2018 From India, Salem
Thanks a lot for your valuable inputs Mr. Umakanthan.
Request you to throw some light on this as well: In case of death of an employee how much amount his/her nominee would be eligible for in - Scenario 1 where the death occurs after 3.5 years and scenario 2 where the death occurs after 6 years?
I had checked in the Gratuity Act however didn't get much clarification on whether the nominee would be eligible for the calculation based on the tenure spent or the maximum limit of gratuity that is 20 lacs.
Regards
Poonam
30th April 2018 From India, Chandigarh
Section 4 in The Payment of Gratuity Act, 1972
4 Payment of gratuity. —
(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: 13 [Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.] Explanation .— For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
A reading of this section gives clear idea of how gratuity is to be worked out
30th April 2018 From India, Pune
Dear Poonam,
I think Mr.Rao has brought out the position clearly with the extract of the relevant section of the Act. When the termination of employment leading to payment of gratuity is death of the employee or otherwise, the formula is the same - i.e, the amount of gratuity depends on the length of service prior to the date of termination. Therefore, it follows that in scenario-1, the nominee would get gratuity for 4 years by rounding off principle and in the latter for 6 years if the period beyond the 6th year falls short of 6 months.
30th April 2018 From India, Salem
Mr.Umakanthan explained well as to why gratuity cannot be paid as a component of salary every month, it being a retiral benefit to offer economic security when a person is not employed to enable him to earn some money every month or regular intervals by gainfully investing the lump sum amount.
Secondly, if an amount is paid as a component of salary even ostensibly as gratuity, it is likely to acquire the character of part of wages by the definition of wages in various Acts and may run the risk of being counted for PF & ESI and even for gratuity payment.
B.Saikumar
HR & Labour Relations Adviser
Navi Mumbai
30th April 2018 From India, Mumbai
As very well explained by Mr. Umankanthan and Mr. Nathrao, it's incorrect to pay Gratuity in advance or in instalments along with monthly salary. More over the Gratuity amount due will be as per Basic pay as on last working day of the employee, as such it may not be feasible for any one to preempt the due amount.
However, for reasons best known- as per respective company policy, if an employees seeks and paid-with any advance, with an agreed term (duly documented) that the unrefunded part of the advance may be settled against his future Gratuity dues, then only it can be legally correct to recover such outstanding dues /advance(s) from future Gratuity dues. Written employee consent is a must, since it is a recovery from a statutory dues (Gratuity can't be otherwise adjusted or attached with any other dues/ advances, unless otherwise authorised by a court for special reasons as considered).
2nd May 2018
Dear Mr Moorthy,
I beg to disagree with your comment.Gratuity is to be paid only on exit after meeting with requirements as Specified in Payment of Gratuity Act.
It cannot be paid in monthly instalments regardless of any individual agreement with the company.
Law is very clear and we should not try to find out loopholes and circumvent the law.
Including a monthly amount in CTC is ok but cannot be paid until 5 years or over or death.
2nd May 2018 From India, Pune
@Mr. Nathrao. Thanks, what I stated was also exactly same. Due date for gratuity is clearly stipulated and no doubt should arise in any ones mind. Neither It can be part of salary nor payable in advance. Part-2 of my statement above, is regarding process for recovery of outstanding advances if any, to be adjusted against future Gratuity dues (as & when its due), with clear consent of employee given in writing. Not to be mixed up with due date for payment of Gratuity.
2nd May 2018
@Poonam. Regarding payable amount of Gratuity dues in case of death of an employee. Actual service counts. Also please check from which state the employee served.
Some of the states (e.g. AP/TS/Maharashtra) have issued GO for compulsory insurance, towards payment of Gratuity. The policies issued by LIC and few other service providers include a provision of future service gratuity. As such the Gratuity payable amount would be calculated not only for past service rendered but also for the future service upto 58 years which is paid by the respective insurance provider through the employer managed Gratuity Trust.
2nd May 2018
Dear Msmoorthy ji & others,
I would like to draw your kind attention that so far in Maharashtra an amendment of 1987 Section 4A on compulsory insurance / setting of gratuity fund, is not brought into force . It is not brought into force in other States also to my knowledge. However, I remember reading some where the notification by AP Govt. of implementing this provision.
Nevertheless, Gratuity Insurance Policy is available from LIC of India and other insurance companies. By paying extra premium in Group Gratuity Policy towards life coverage, one can cover the life of employees. In this case, gratuity is paid in death cases considering gratuity years up to the age of retirement and salary at age of retirement on the basis of increase in inflation.
5th May 2018 From India, Mumbai
Dear Koragoankar ji
Please see the attached AP Govt notification for compulsory gratuity insurance. Same applicable for TS also. As regards Maharashtra please see section 4A in the attachment provided, which stipulates compulsory Gratuity insurance.
7th May 2018

Attached Files
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File Type: pdf The Gratuity Act Maharstra rules 1972- see sec 4A.pdf (47.1 KB, 33 views)
File Type: pdf Compulsory_Gratuity_Insurance_Rules_2011.pdf (203.5 KB, 41 views)

Dear Mr.Moorthy ji
I also concur with Mr.Keshav Korgaonkar that the State of Maharashtra has not notified gratuity insurance rules in terms of sec.4A on the lines of AP & Telangana .The Section 4A will not be in force in a State unless the State Govt. concerned notified it to be in force as is evident from the commencing lines of the sec.4A which state "with effect from such date as may be notified by the appropriate government in this behalf......".
B.Saikumar
HR & Labour Relations Adviser
Navi Mumbai
7th May 2018 From India, Mumbai
The Gratuity Act rules of Maharashtra state come into force only once they are passed by the State Cabinet, which are an elaboration of the the Gratuity Act for purpose of implementation across Maharashtra state.
Still if any doubt, the same should be referred to the Concerned Government authority who will be the competent person to clarify.
7th May 2018
Dear Msmoorthy ji,
I failed to understand your last post.
I wish to bring more clarity in subject matter as under.
This Section of compulsory insurance was inserted in the Act by Act No. 22 of 1987 with effect from 1.10.1987 giving liberty to the appropriate Governments to notify the date of coming into effect of the said Section.
This Section clearly states which is given verbatim as "With effect from such date as may be notified by the appropriate Government in this behalf, every employer, ....."
You have uploaded a notification of AP. Likewise, there is no notification by GOM till date.
Also, you stated that the notification uploaded by you of AP Govt is applicable to TS. This can not happen. Each State Govt has to come out with notification like AP Govt.
7th May 2018 From India, Mumbai
Please read the attachment sent by me "THE GRATUITY ACT, 1972
The Payment of Gratuity (Maharashtra) Rules, 1972." . Section 4A clearly stipulates for the ibid provision, with out any clause of if & buts.
(Why are we getting confused with Act 22 insertions etc?).
As regards AP notification (of combined state) pertains to a period prior to the split of AP & TS and the Acts / Rules and GOs etc of combined state are made applicable mutatis mutandis for both states, unless other wise explicitly cited. Please seek a clarification from respective state Govt officials and if your point of view is ratified from the Govt authorities every one will accept your viewpoint and be thankful for the clarification.
9th May 2018
Dear Msmoorthy ji,
As regards to the second part of your post#22 above, you are correct which I said earlier also. There is a notification by AP Govt giving force to implement the amendment of 1987 in Section 4A. However, I misunderstood TS as Tamilnadu State.
There is no need to seek clarification from State Govt Officials on the subject matter. I am practising in Maharashtra since so many years and I know how many Govt Officers in Maharashtra from Labour Department has knowledge on Labour Law subjects.
When a person like Mr. Saikumar who is practising HR & Labour Relations Adviser since couple of decades in Maharashtra concur with my views, there is no need to seek clarification from any other person.
I have a bare Act with me right now with Maharashtra Rules, updated and when I say something I say it with due study on the subject. Some time I also may go wrong and I learn from the wrongs.
Amendment of 1987 in Section 4A of POG Act is very clear. It has a condition stating - "with effect from such date as may be notified by the appropriate Government in this behalf, every employer.....".
From my side I conclude this subject with no further post on this subject.
10th May 2018 From India, Mumbai
All you learned people,
Thanks a lot for your detailed inputs. It has given me enough explanation to present it further to my manager.
14th May 2018 From India, Chandigarh
Sirs,
How to counter a Labour Contractor, for say providing Security Services / Personnel, who collects the Gratuity amount from the company and releases a contractual employee before completion of 5 years (eligibility) service; and pockets his gratuity amount ?
What are the options available to the Company, the principal employer ?
14th May 2018 From India, Pune
Re-Posted......
Sirs,
How to counter a Labour Contractor, for say providing Security Services / Personnel, who collects the Gratuity amount from the company and releases a contractual employee before completion of 5 years (eligibility) service; and pockets his gratuity amount ?
What are the options available to the Company, the principal employer ?
15th May 2018 From India, Pune
Dear Sandeepsahni,
If it is a pure manpower contract, in such case you can exclude the gratuity amount from the contractor's monthly costing. Ask the contractor to submit quote/bill without gratuity component. Pay the gratuity amount on basis of actual working/payment agst documentary evidence (only when the employee complete 05 years of service).
However, in case of transferable service it is little bit difficult to identify the period, specially in security contract you can’t predict / calculate the service period, as this is movable nature job. May be the employee worked in other organization from long back and deputed at your site for a short period and then left the job. In such case the contractor is liable to pay gratuity, even though the employee has not completed 05 years with you. Even in such case/s also you can ask the contractor to raise separate bill for the period for which the employee deputed at your location. The balance amount (other location) contractor will be bear.
Hope my point is cleared to you, experienced member can put more light on the matter.
15th May 2018 From India, Delhi
If gratuity is paid every month with salary then it will become taxable under Income Tax Act, 1961. However when gratuity is paid as lump sum on retirement then certain amount is non taxable. This amount which will not attract income tax is likely to be enhanced to INR 20 Lakhs.
15th May 2018 From India, Mumbai
Dear Mkpande1,
I just add to what you said.
If Gratuity is paid every month, then it is not a gratuity as per POG Act and it is a part of his monthly salary. Also the employee will certainly have claim over the Gratuity as per the POG Act on his separation after completing 5 years of continuous service. Section 4 of the Act says that the 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.
When any payment is due on termination how one can pay it before termination on monthly basis? This kind of questions should not come from HR fraternity.
Mind well, this will be an additional burden for employer.
17th May 2018 From India, Mumbai
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Regards
Adv. Sneha
24th May 2018 From India, New Delhi
#Anonymous
Hi to all of you,
Here is the new issue kindly provide your suggestions;
One employee is working in "XYZ Industries" for 3 years; now "XYZ Industries" is closed by the owners & shifted all the workers in new firm"XYZ_NEW_firm".
In this case query is as listed below;
1) now one employee resigned his job from "XYZ_NEW_firm" after 2years & claims for gratuity saying i have completed 5-years.
( 3-years in "XYZ_Industries" + 2-years "XYZ_NEW_firm").
In this scenario is it legal liability of the "XYZ_NEW_firm" to pay gratuity the resigned employee?
Kindly provide solution..
Best Regards,
Max
24th May 2018 From India, New Delhi
#Anonymous
Hello sir Mr Umakanthan.M
Hi to all of you,
Here is the new issue kindly provide your suggestions;
One employee is working in "XYZ Industries" for 3 years; now "XYZ Industries" is closed by the owners & shifted all the workers in new firm"XYZ_NEW_firm".
In this case query is as listed below;
1) now one employee resigned his job from "XYZ_NEW_firm" after 2years & claims for gratuity saying i have completed 5-years.
( 3-years in "XYZ_Industries" + 2-years "XYZ_NEW_firm").
In this scenario is it legal liability of the "XYZ_NEW_firm" to pay gratuity the resigned employee?
Kindly provide solution..
Best Regards,
Max
24th May 2018 From India, New Delhi
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