Hello, My organisation has been contributing Gratuity as part of CTC from the date of joining.
The way of calculation of Gratuity has been Basic X 15/26. This was accepted by the employee at the time of joining
However, the employee has now expressed his displeasure for the same as he is losing an amount of Rs 5000 if the gratuity is calculated for the last drawn salary X 15/26. He also cites that since his joining his Basic has gone up 37% in the last 6 years. I would like to know that are we wrong in computing gratuity from the date of joining.
Please advise.

From India, Mumbai
Dear Madam,
As per act Gratuity calculation is Basic+DA*15*Number of Services/26.
how does he lose Rs.5000/- could you elaborate for my understanding.
Gratuity must be calculated from the first day of joining.

Regards,
Manjunath S B

From India, Chennai
Dear Sir Please consider the following calculation as attached as an image Regards Anuradha
From India, Mumbai

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Gratuity figure while calculating CTC ( No legal stand ) is a notional figure not the actual figure. When an employee will be eligible for gratuity that should be paid on the basis of last drawn Basic or Basic+DA. Therefore, the calculation is shown is not correct. Monthly gratuity values are notional values not the actual.
From India, New Delhi
Dear Bandyopadhyay Is this notional calculation of Gratuity prohibited as per the act if so is there any penalty for doing so. Please do let me know Reagrds Anuradha
From India, Mumbai
I would like to know if you are from HR or from some other function?

I am not sure if you read the attachment properly or whether you wrote your query wrong.

The gratuity part on CTC comes to ₹ 89,000 while the actual gratuity that will be paid comes to ₹ 94,000. So how exactly does the employee lose? The company loses, not the employee. He or She is getting paid ₹ 5,000 more than what is computed as per her CTC

From India, Mumbai
Dear Anuradha, As per PG Act, gratuity has to be paid on the basis of last drawn salary not on each year's gratuity and then add it on the basis of each years different basic. Yearly basis calculation is simply violation of PG Act guidance to calculate gratuity.
From India, New Delhi
As rightly said by Nanu, gratuity has nothing to do with salary at the time of joining and subsequent increments given but it is based on the salary of the employee at the time of exit. I also believe that gratuity should be calculated on the basis of total salary and not on basic salary alone and allowances which do not form part of salary should only be excluded from it. Allowances which do not form part of salary means such allowances which will be paid irrespective of attendance or whether the employee is on leave or not like house rent which is paid to some employees who stay in rented houses for meeting the interests of the company, education allowance which is paid to those who have children undergoing some studies, telephone allowance to some employees who use personal telephone for company business purposes etc. Here what is important is "some' employees and if you have an HRA or education allowance or telephone allowance as part of your salary structure and paid to all employees irrespective of whether they stay in their own houses or whether they are asked to stay near to the company or not, or whether the children undergo any courses of study or use telephone for official purposes, as the case may be, the same will be considered as part of salary. Obviously, in case of leave without pay, you will make proportionate deduction of HRA, education allowance or telephone allowance while making salary payment.
From India, Kannur
Saswata
Have you read my query and understood it as you claim to be a an Auditor.

How is the company loosing and the employee gaining

Can u explain your stand with calculations to support your presumptions.

Anuradha

From India, Mumbai
Dear Ms.Anuradhagrewal,

Statutory gratuity is a future payment based on the length of past service rendered in the establishment by the employee in the event of his exit and the factor for calculation is the last drawn wages by the employee. Here, the last drawn wages is not only what is actually drawn on the last month but also the rate at which it is payable. Thus, it is clearly evident that gratuity under the Payment of Gratuity Act,1972 is a one-time lump sum payment payable by the employer to the employee on the termination of his employment and as such it requires no contribution from the employee other than blemishless and continuous service under the same employer.

Of course, the Act encourages the employer to constitute a gratuity fund or compels to take up an insurance policy towards this future liability u/s 4-A of the Act the calculation for which is normally on actuarial basis @ 4.81% of the wages. But the amount to be realised under this arrangement shall not be less than the actual amount of gratuity payable at the end of service. So you can add up a sum equivalent to 4.81% of the wages every year to the gratuity fund which can be a part of the CTC in respect of the particular employee and this cannot be deducted from his basic wages. In the given case, the employee is entitled to a sum of Rs.1134630-00 on his exit after a service of 7 years in the establishment.

Therefore, your calculation is erroneous from the very beginning as you start from the sum of CTC which is nothing but an accounting tool to assess the overall cost per employee per annum and in violation of sec. 4(2) of the PGA,1972. In case of a dispute by the aggrieved employee, you would be compelled to pay the difference with 10% simple interest w.e.f the date it becomes payable.

Dear Mr.Madhu,

Really I am a bit confused with your post regarding the definition of the term ' wages' for the purpose of calculation of gratuity under the PGA,1972. May be your interpretation is based on "the doctrine of universality" applied by the Apex Court recently on the interpretation of wages under the EPF Act,1952.

To me, the definition of wages u/s 2(s) of the PGA,1972 is clear, unambiguous and not disturbed by any other subsequent provision of the Act leading to other way of possible interpretation, if any.
The definition can be divided into three parts - one, the defining part; two, the inclusive part and three, the exclusive part.
Wages means all earned emoluments while on duty or on leave.
Wages include dearness allowance.
Wages exclude bonus, commission, house rent allowance, over-time wages and other allowances.
Therefore, it is clear that for the purpose of gratuity calculation under the Act, only the sum of last drawn basic wages and dearness allowance should be taken into account.

From India, Salem

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