Labour Law & Hr Consultant
Nagarkar Vinayak L
Hr And Employee Relations Consultant
Hr Manager
[email protected]
Retired Government Servant/advocate
Manager, Human Resources
Insolvency N Gst Professional
Hr Consultant

Hello All, Would like to get your opinion. We don't have a salary structure, which due to we are paying Gratuity on Gross Salary. Now, we are going to introduce Salary Structure for all, so that our liability can be controlled. For that, would like to know
1) Can we pay as on today gratuity to members, who are eligible for gratuity?
2) Can we pay X % of Gratuity today (loss of Gratuity, due to introducing structure) and remaining at the time of actual payment, when member resigned or retired.
Seek your opinion.

From India, Ahmadabad
Payment of gratuity is a terminal benefit, given by employer to employee at the time of his exit from the organization on resignation, termination of service (except moral turpitude) , or retirement.
Gratuity is calculated on the basis of last drawn salary of employee.

From India, Aizawl
paying gratuity during the working will not resolve the issue, but will make it more complicated, as there is no provision of gratuity payment during the midway of employment, it is payable at the time of leaving the job only , today or tomorrow, there would be increments where employer can adjust the increments in other headings, keeping the present level as basic
for a handy solution, opt for group gratuity scheme of LIC, and deposit the applicable amount there, it will reduce employers burden,
restructuring of wages without discussion with employees and their consent may dent the performance of establishment, but at the time of increments, the management can do it by adding perks / allowances in place of basic hike

You can pay this amount as Advance towards gratuity, which would otherwise become payable to the employee at the cessation of employment and adjust this amount from the amount of gratuity to be paid at that time. If an agreement is entered into between the management and the employees in this regard, then it will be on safer side.
From India, Faridabad
Dear colleague,
There is no legal provision to pay advance against gratuity as it is payable on last salary drawn basis on cessation of employment.
If you bifurcate your salary structure because of which basic is going to be reduced, it will be create anamoly as regards gratuity.
Explore if you can pay it as an ex- gratia now in faviour of employees but consider the service for gratuity payments in future when due. This is certainly double payment but is necessary to compensate for reduced basic arising out of restructuring wages.
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
Further to my post (No.2) I wish to elaborate further for reference by the poster.

Gratuity is a statutory right of employees and cannot be denied to them on the grounds that they are being given provident fund and pension benefits. Gratuity is a statutory benefit paid to the employees who have rendered continuous service for at least five years.

It is a lump-sum amount paid to an employee based on the duration of his total service. The benefit gratuity is payable to an employee on cessation of employment either by resignation, death, retirement or termination, by taking the last drawn salary as the basis for the calculation.

Gratuity is an important form of social security and is looked at as a gesture of gratitude by the employer to the employees, paid for in monetary terms, for the services rendered by them to the organization. It is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. Gratuity payment liability of the employer tends to increase with an increase in salary and tenure of employment.

From India, Aizawl
Gratuity is a payment of welfare benefits on severance of employer-employee relationship.
If employer wishes to pay any amount earlier on account of any reason it can be termed exgratia payments which will be taxable,while gratuity is non taxable subject to conditions.
Structuring of salary structure needs to be done in a manner which does not reduce present emoluments.
Restructuring is not a way to reduce salary(even unknowingly or unintentionally.)
So plan restructuring appropriately and avoid getting into the hassle of ex gratia or gratuity payments when employee is still in service.
Employee will be looser. he will get gratuity on todays salary while as per law it is to be worked on last drawn salary.

From India, Pune
Such an arrangement vitiates the ver objective of the statutory provision for payment of gratuity and could lead to legal imbroglio.
From India, Kochi
Dear friends,

Considering the polarised response on the issue of advance payment of gratuity while the contract of employment is still alive, I would like to look at the origin of the issue as depicted in the post. It's the only reason that the establishment has no salary stucture so far which would imply payment of consolidated salary. Now, the employer wants to introduce salary structure comprising of various components as basic and other allowances. Hence the proposal.

I think that the very proposal is an unwarranted exercise. As rightly pointed out by most of the members, the question of gratuity will arise only on the termination of employment and hence no question of prior payment of gratuity even in the name of gratuity advance just because of the proposed change in the salary structure. That apart, it is against the very purpose of the concept of gratuity as pointed out by Mr.Venu. Since, gratuity calculation is based on last drawn salary only, the change in salary structure in the middle of the service will not have any adverse impact on either the employer or the employees.

From India, Salem
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