Can Gratuity be part of the CTC? Since there are no specific laws/acts that govern the CTC aspect per se, Companies usually include "all cost line-items" as part of the CTC. However, there is a school of thought that suggests that Gratuity is a component that is offered by the Employer to the Employee and that the Employer should bear the cost. Therefore, to include Gratuity as part of the CTC is like taking it "from out of the Employee". However, those who are in favour say that to include Gratuity as part of the CTC is a "transparent action" by the Employer wherein it is clearly demonstrated to the Employee that the Employer is allocating the amount every year - which the Employee can rightfully claim after fulfilling 5 years of service, just in case, the Employee intends to leave the organisation.

My query stems from certain thoughts that are shared across several online portals is that Gratuity, if made part of CTC, can be challenged and contested in a court of law and that it would fetch a nominal punishment for the Employer. So, does the Payment of Gratuity Act, 1972 stipulate any condition basis which a court of law will award a punishment? First of all, if Gratuity is part of CTC, does it tantamount to any violation of any of the provisos of the Payment of Gratuity Act, 1972?

Can anyone please clarity to the above-mentioned pointed queries?

From India, Mumbai
Labour Law & Hr Consultant
Ceo-usd Hr Solutions
Management Consultancy
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Dear Ramachandran,

'CTC' is a mere accounting tool to enable the employer to assess his overall annual cost per employee; even though not specifically termed and called as such, it has been a very long practice in collective bargaining relating to wage/salary fixation and revision.
Unfortunately or otherwise with the drastic decline in unionisation after the advent of LPG, wage/salary fixation and revision has generally become a direct bargaining between an individual employee and his prospective employer, particularly an ubiquitous practice adopted in respect of the so called " knowledge workers ". That's how comes the aspect of transparency embedded in the CTC format.

One should remember that certain statutory liabilities of the employer towards his employee like ESI, EPF, gratuity etc., have to be fulfilled by him whether they are included and shown in the CTC or not. Just because they are mentioned in the CTC, such statutory benefits cannot be claimed by the employee if he does not comply with the minimum eligibility conditions prescribed under the respective laws. Therefore , my submission would be that a statement of CTC, per se, cannot have any statutory force nor it can be treated as an inseparable part of the contract of employment.

A pertinent question may be raised in respect of non-statutory benefits like reimbursement of medical expenses, tution fees of children and the like mentioned in the CTC. In my opinion, they are perquisites peculiar to the establishment and as such either they should be mentioned in the compensation package of the contract of employment or in the service regulations pertaining to the particular cadre of service.

Schools of thought always emerge from logical interpretive exercises only giving more importance to a particular aspect of a subject-matter and their validity cannot be confirmed unless they are tested on the anvil of interpretation by the higher judiciary of the country.

Therefore, as of now, the contents of CTC pertaining to statutory benefits cannot override the statutory minimum conditions for their fruition for the indisputable reason that it is not distinct and different form of wage/salary determination.

From India, Salem

In addition to the learned exposition of Umakanthan Sir, additionally it is mentioned that originally there was employee costs in which all direct expenses related to employees were tabulated for accounting purpose of an establishment, later the concept of CTC emerged, which is more misleading than the real picture. There are several instances where the employee to his horror found that the gross salary of the employee is not even half of the promised CTC. Gratuity contribution is in the same way is added to make the CTC look attractive. It is not only gratuity but also other benefits and facilities are monetised and shown as included in CTC.
Gratuity is governed by the Payment of Gratuity Act 1972 and there is no provision providing for its inclusion in CTC nor forbidding it. Hence the apprehension of its inclusion tantamount to
violation of any of the provisos of the Payment of Gratuity Act, 1972 is out of place. So also there cannot be any punishment on this count.

From India, Mumbai
Dear Mr Umakanthan and Mr KK... Many thanks for your valuable time and for your insightful detailing. Best regards, Ramachandran R
From India, Mumbai

Dear Mr. Ram,
Gratuity can,t be the part of Employee CTC despite it is a sum of money paid by an employer to an employee for services rendered in the company who complete five or more years with the company. As because it has a time bar and Section 3 of the Payment of Gratuity Act, 1972 provides for a ‘Controlling Authority’. The act gives the controlling authority the status of a ‘quasi-judicial’ body which implies that it is empowered to adjudicate disputes arising out of non-payment of gratuity.
Thanks & Regrads
Sumit Kumar Saxena

From India, Ghaziabad

Hello All;
Gratuity is payable at the end of service, minimum 5 years. Exceptions are death of employee or involuntary unemployment of employee due to employer. Here the employee could have completed 5 years, is the assumption.
CTC is for comparision of employees' compensation and also information to employer. Certain payments vary with the slab of wage component or when they are as a percentage of some wage component. CTC has no legal value. It is a tool in the hands of employer or employee. Cost includes wage, allowances, reimbursements, subsidies, facilities, and any other payment, direct or indirect. After all it costs the company. CTC helps at the time of new recruitment, promotion, transfer, relocation.
Considering the above, gratuity can certainly be included in CTC. Problem comes when an employee leaves before 5 years. Because, while comparing gratuity is included but acturlly not paid.
Therefore right will be
1. If the company is paying gratuity for 1-4 years also, then it is ok to include gratuity in CTC.
2. If the company is not paying gratuity before 5 years then
a. Do not include gratuity in CTC for first 5 years.
b. Include gratuity in CTC after 5 years.
Simply saying, what does not become payable, should not be included in CTC.
Vibhakar Ramtirthkar, Pune.

From India, Pune

There are several post in this blog whether Gratuity should be the part of CTC or not. Even the original post seeking clarification for legal action.

First of all CTC has no legal stand. It is just a management tool. Therefore, any court of law will reject the subject. Now many are in opinion gratuity should not be part of CTC and there are many who opined it should be. Basically the perception differs because gratuity is a conditional deferred payment. In case of death or Fix term contract( as per new labour codes) gratuity will be required to pay for the years of service even less than 4 years 240 days continuous service.

In today's remuneration structure in many organizations there are variable pay, deferred pay, conditional pay etc. ( Variable pay based on organizations profit, deferred pay like retention allowance will be paid at the end of 1/2/3 years ( vary from organizations to organizations ) , conditional pay like LTA to be paid after completion of 1 yr service etc. etc. ).

To my opinion every organizations are now a days controlling employee cost but different organizations has different outlook. Accordingly, which component of the remuneration should be considered as part of CTC is also vary randomly. Moreover, many organization are funding to LIC where employer is required to pay premium every year based on employee strength at the time of paying the premium. In case of early leaving of any employee if gratuity is not required to pay to employee, the deposited amount is adjusted against the future premium etc. based on fund valuation.

As there are many other payments which are conditional and deferred along with gratuity, to my opinion it should be considered as part of CTC for better control of employee cost.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531


From India, New Delhi

Dear Mr Ram

The contract of employment between employer and employee ( as both have signed) document always can be adjudicated either of parties, incase of dispute.

There was no statutory word called CTC ( Cost to Company) as it varies from organization to organisation.

Lets talk about the Gratuity, if it is stated in the contract of employment that a month salary will be paid per each completed year of service and after super annuation, if employer, wants to pay only 15 days salary per each completed year of service, then the employee is well with in his right to raise a dispute before the Court.

The reason is simple, at the time of joining as per the contract of employment, employer agreed to pay beyond statutory, basing on which employee agreed to join.

From India, Hyderabad

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