I want know about how gratuity is decided by employer, and is it deducted from employees' monthly salary ? if yes where is the money depodited ? if no is gratuity paid from employers pocket . can we give gratuity to employees who didn't complete 5 years of service?
From India, Gurgaon
Labour Law & Hr Consultant
Loginmiraclelogistics & Management)


All information on this query already discussed in this forum many a time. Pl.browse on the links appearing on to your right of the screen.
Contribution towards Gratuity cannot be deducted from employees. It's employers' liability to contribute to a Gratuity fund, annually from where gratuity amount shall be paid to exiting employees who becomes eligible under the Act.
Though the Act stipulates payment to those eligible by completing 5 yrs.(4 yr.+240 days)of 'continuous service' there is no impediment to disburse to those not completing this stipulation.

From India, Bangalore

Dear friend,
I do hope that an understanding of the concepts of gratuity and CTC obtaining in the realm of employment, more particularly the statutory gratuity under the Payment of Gratuity Act,1972 would certainly dispel the doubts raised in your post.
1) Gratuity is a one-time-lump-sum terminal benefit payable to the employees on the termination of their employment after rendering a minimum qualifying continuous service of five years by an employer to whose establishment the Payment of Gratuity Act,1972 becomes applicable.
2) Since the amount of gratuity thus payable is an exclusive statutory liability of the employer, the employees have no monetary contribution from their side. The amount of gratuity payable is calculated on the basis of the last drawn wages/salary of the employee and the total no of qualifying service rendered in the same establishment. Thus it would be a heavy drain from the employer's pocket on a day it becomes due. Therefore, in order to eliminate the risk of inability of the employer to pay it when the occasion arises, the PG Act,1972 requires every employer to take up a compulsory insurance policy in this regard.
3) Cost of employment of an employee, on the other hand, denotes the sum total of expenses quantifiable in monetary terms and incurred by the employer from recruitment to termination of the contract of employment. It includes the gross salary comprising of basic pay and all other allowances payable under the terms of the contract of employment, statutory contributions payable by the employer, annual payments like statutory bonus, all other fringe benefits offered and paid as a measure of employee retention and so on. Thus the sum total of all these are projected in the CTC to make the offer of employment more attractive.
Therefore, under this notion -
CTC= Contractual Gross wages & all allowances+ Employer's Statutory monetary liabilities+ Contractual liabilities.
4) Hence what all the items mentioned in the CTC are expenses actually incurred towards the employee from employer's perspective. So no question of deduction from the actual gross monthly wages payable to the employee except statutory employees' contributions like EPF and ESI. In fact, such periodical contribution made by the employer would come to fruition only when the occasion for its payment to the employee arises.

From India, Salem
Jaspreet Singh Janeja

The term CTC should not be confused with the term SALARY. The words "deducted from employees" implies a lack of clarity about CTC concept. It is actually "not paid" to employees who are "not entitled". The payment of gratuity is subject to entitlement as per statutory provisions.
CTC of employees is calculated for costing purpose, to take appropriate provision for employee costs in the books of accounts.
Scenario 1: Gratuity is included in CTC but employees leave before completing 5yrs service and hence don't get gratuity payment. Projected EBITDA is not affected.
Scenario 2: Gratuity is not included in CTC but employees complete 5yrs service and hence get gratuity payment. Projected EBITDA is AFFECTED. No company wants that to happen.
Jaspreet Singh Janeja

From India, Chandigarh

Above all, to be clear
i) payment of Gratuity is being a statutory benefit payable by an employer to every eligible employee, is an obligation/liability whether the employee concerned is under CTC or any other pattern. Irrespective of whether mentioned therein or not;
ii) moreover this is an "exclusive liability" of the employer and therefore NO contribution from the concerned employee is necessary.
Therefore "gratuity" liability should not be confused with that of EPF/ESI, which are contributory on both the sides.

From India, Bangalore

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