Industrial Relations And Labour Laws
Labour Consultant

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Dear Sir,
Greetings for the day!
One of mine freind is working in Limited company. As per company's current HR policy gratuity is payable to all employees on Gross Salary Bases. However, company has decided to change the policy WITH RETROSPECTIVE EFFECT to pay gratuity on Basic+DA.
My question is whether company can do so?

No,this cannot be done without issuing notice under section 9 A of Industrial Disputes Act. Moreover, gratuity being an amount calculated based on the remuneration or salary as per contract of service reducing it from the salary to a basic salary and DA alone is illegal. Salary for the purpose of computation of gratuity should include all fixed components of salary which are considered for payment if the employee is on paid leave or deduction if the employee is on leave without pay. Obviously, an allowance, say, house rent allowance paid as reimbursement of rent paid by the employee for the rented house taken for his residence or the rent paid by the employer for the employee's residence can be excluded from salary.
Dear Jignesh,
Madhu Sir has replied your query in detail as per the provisions of the Payment of Gratuity Act, 1972, Section 2 (s) . However, in India most of the companies are paying gratuity only on Basic plus Dearness Allowance and where there is no DA than only on Basic pay. No inspecting authority has any objection on it so far.

In this case he company was earlier paying gratuity on gross salary and making it on basic and DA is against the service conditions also. Actually gratuity is an amount to be calculated on the remuneration as per the contract of employment. Remuneration or salary as per contract of employment cannot be reduced without changing the conditions of service which, in turn, requires notice u/s 9A of the ID Act.
Thanks Madhu sir, for the detailed info. Vikash Kumar - Ranchi
Dear Madhu Sir,
I have clearly mentioned in my first sentence that you have replied Jignesh query in detail and its perfectly right thus applied for his friend's organisation.
My second sentence is generic which is followed by most of the organisations for computing gratuity payment on Basic + DA.
Regret for the confusion, if any.

Yes, I know but why did I post it again was to reiterate the point, that’s all. I understood what did you convey. Thanks,
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