Previous to May 2018 we had gratuity calculation on Gross Salary, i.e gross salary * 4.81% which indicated higher amount in the CTC. But recently management has taken the decision to be calculated on Basic + DA which is as per law. Now we have a few issues like Employees working for more than 5 years have been effected.
Also, what is the maximum % of basic salary calculation. Right now we have Gross salary * 50% is basic salary and DA is 10% of Basic Salary.
Now as an HR i am confused how to handle this issue as everyone's CTC has gone down drastically. Please guide!!

From India, Vasai
Sr. Hr Executive
Pan Singh Dangwal
Joint Manager
Insolvency N Gst Professional
+1 Other

Dear Reshma,
First of all you need not to show gratuity as a part of CTC breakup as it is not payable to the employee before he / she leaves the organisation. Secondly yes it is right to consider gratuity on Basic + DA. There is no maximum % of salary defined for Basic the only minimum stipulations are there thus you may keep 50% or more also till the time you are meeting with other criteria's such as DA should not be less than the specified by appropriate authorities and HRA minimum 5% of basic etc.

Dear Reshma,
Keep Basic + DA 60% for all staff.
Calculate Gratuity bases on this.
At this point of time the gratuity fund accumulated might be higher.
No problem in doing it as such.
How about ceiling of the gratuity? 10L or actual? Check on that also.

From India, Madurai

This is what we have currently (First we did not have DA, now its added but adjusted to same gross salary)
Basic - 50% of Gross
DA - 10% of Basic
HRA - 40% of Basic
Gratuity - (Basic + DA)*4.81%
Gratuity ceiling is at Actual. i.e 20 lakhs.

From India, Vasai
Dear Reshma,
The change in Gratuity Formula will affect the CTC, but it will not effect the “In Hand” salary. You can convince the same to the employees. But it is a major concern in respect of people who have completed five year coz their gratuity amount which was due on higher amount now it will drop down drastically, due to change in formula pattern. In such case you can increase the "In Hand" salary for the difference amount. For example we take some imaginary figures for an employee monthly CTC
Monthly CTC Rs. 50,000
Basic Salary+DA Rs. 25,000
Gross Salary Rs. 40,000 (Before deduction on which earlier
Gratuity calculated @ 4.81%)
In Hand Rs. 35,000 (After deductions)
Gratuity amt. Rs. 1,924 (on Gross salary Rs. 40,000)
Now after new pattern Gratuity will be decreased to Rs. 1,203 (on Rs. 25,000). In such cases you can adjust the gratuity difference amt. Rs. 721 (1924-1203) in allowances and increase the “In hand” Salary for those who have completed 5 years.
This is coz their gratuity is due, decreasing the Basic for gratuity means reducing their due benefits. So they must be compensated by increasing the “In hand” salary.
However, those who have not completed 5 years they can be convinced by saying it is not affecting “In hand” salary. Moreover, the new pattern (Gratuity on Basic+DA) is as per Law. Company is bound to pay the minimum wages and benefits which are defined by the govt. through various acts. Over and above is solely company decision.
However, first you need to frame a company policy regarding change in the patter of gratuity calculation. Same should be circulated to all employees. So that it can be produced in case of any future dispute.
Hope this will help you to overcome the situation. Seniors can throw more light on the matter.

From India, Delhi
Dear Mr. Dangwal,
Thank you for the explanation. Giving the compensation for those who are due for Gratuity, is this applicable as per law?
Management will not agree to it. Let me know if there is any other way

From India, Vasai

Formula for gratuity is clear and Basic pay +DA is to be used. But no one stops company from paying more gratuity if they so desire.
From India, Pune
Dear Mr. Nathrao, Thank you. Yes the Formula is clear. Regards.
From India, Vasai
Hi, Reshma,
Are you presuming that Management will not agree to increase the salaries of those who have completed 5 yrs of service unless it is as per law?
You can put forward the suggestion that this is as per principals of natural justice, as the employees were promised a different CTC when they joined and would now be at a loss, which could lead to a legal dispute.
Thank you,
R. H. Kavarana
HR Manager

From India, Mumbai
As per law payable only after completion of 5 year of service i.e 4 year +240 days in 5th year of service.Calculation should be done on Basic+da instead of gross salary.
Thanks & Regards,
Sumit Kumar Saxena

From India, Ghaziabad

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