Gratuity in CTC: Should It Be Included at Joining or Only After 5 Years?

Hi all,

I need your views/comments on whether Gratuity can form a part of CTC at the stage of joining. Is it statutorily correct? Or shall it be applicable only after completion of the 5-year term.

Awaiting your reply.

Actually, the gratuity is not a part of CTC. It is applicable only after completion of continuous 5 years of service. However, some employers are taking it as a part of CTC while bifurcating the salary structure, which is not at all a fair practice.

Regards,
Sivadasan

As per my knowledge, a number of employers are considering it as a part of CTC, and it can be the part. The deduction (generally 4.16% of basic) goes into a separate account for gratuity. The eligibility for gratuity is 5 years of working in the same organization, and in case the employee leaves the organization any day after 5 years, the employer has to pay the gratuity amount as per the calculation formula. There is no deduction after five years. How will the company pay if an employee leaves in 5.5 years?

Regards,
Manish

Normally, as a part of CTC, it has been considered by most of the organizations. The logical reason behind this is "to allocate a sum of money on a yearly basis (in an employee's account) to a separate trust/fund," which gets reflected in the annual balance sheet as well. Eligibility for gratuity is after completion of 5 years only, and considering the expectation that the hired employee will stay with the organization for at least 5 years, it is done. Legally, there is no clear clarification on whether the 4.81% of the basic salary has to be covered as a part of the Annual CTC.

Dear Sachin,

Well, as far as I see this query, try to err on the safer side; do not include it in the salary breakup. Because, at times, employees leave the organization before completing five years of service. What will you do then? Are you going to force them to complete five years with us before they are eligible for it? I wish you would follow the law pertaining to this query. You can add other benefits such as VRS, Superannuation, etc.

Regards,
Vipin

Dear Sachin,

I suggest you include the same under the CTC as practiced by many companies because generally, most companies start contributing to the fund from the date of joining the employee or during the yearly renewal.

Regards,
Srikanth

Dear Sachin,

You have posted a very good question for discussion. I would like to give my comments as follows:

In my opinion, if a service bond for five years is in place, then this amount can be well shown as part of CTC. Although the risk of payment of gratuity starts after the completion of one year of service, as in the case of death, gratuity has to be paid to the nominee of the employee. Notice pay, retrenchment compensation, etc., are also factors that impose liability on the employer, which may or may not be included. The employer, to be on the safer side, should keep in mind this type of liability. If the responsibility of gratuity payment has been assigned to LIC, etc., then the amount taken by LIC regularly should be shown in CTC.

Submitted as requested,

R.N. Khola
Sr. Associate

In my view, Gratuity is not a part of CTC. However, it depends on the employers.

Also, Bonus is not a part of CTC. :)

Hi,

Thank you for your valuable suggestions. I would like further clarification on whether it is statutorily required to fill in the gratuity nomination form upon joining or upon completion of a 5-year term. If it is required upon joining, does that justify it being included in CTC? Please share your views.

Regards,
Sachin M.

Dear Sachin M,

The nomination form in duplicate is to be filled out upon completion of one year of service, by the employee concerned. This form is to be submitted by the employee, and after verification of the particulars, a copy of the same is to be returned to the employee by the management.

Regards,

R.N. Khola
Skylark Associates, Gurgaon (Haryana)

Dear Paresh M. Vyas,

Gratuity is not a part of CTC and is not included in the CTC breakup. If an employee has completed five years or not, gratuity is not calculated in the CTC.

With warm regards,
Paresh M. Vyas
Advocate & Labour Laws Consultant (M)
Email: pareshvyas04@yahoo.co.in

Dear,

As far as my knowledge is concerned, Gratuity is completely the employer's contribution. The employer can mention the gratuity contribution in the Appointment Letter, provided it is stated in the appointment letter that the employer would be contributing to the gratuity part, and the employee can claim his gratuity after completion of 5 years only.

In case an employee resigns before 5 years, the employee is not supposed to claim his gratuity amount (as mentioned in the Appointment letter - Gratuity is contributed by the employer). If an employee's tenure is closed with the organization before 5 years due to termination, then the employee can claim his gratuity amount.

For details, please go through the attachments.

Note: Always avoid mentioning gratuity contribution in any correspondence that needs to be handed over to the employee, e.g., salary slip, etc.

Thanks & Best Regards,

Prem Singh Rawat
The Department of Human Resources

Hi,

Since CTC means Cost to the Company, all expenditure made from the company's coffers with respect to the employee (and which will not be spent if the employee does not exist) needs to be taken into account. We must remember that we are not talking about salary or remuneration.

Regards,
N. Balan
RVMN Associates
CSG Group

Who is the controlling authority of the gratuity? Who will pay the gratuity amount - is it the employer or the government controlling authority?

Please note that the controlling authority for gratuity is typically the employer, not the government. The gratuity amount is a statutory benefit provided by the employer to an employee upon meeting certain criteria, such as completing a certain number of years of service. It is not directly paid by the government.

I want to know if an employee has completed six years, will they receive gratuity only for 5 years or for 6 years? If a terminated employee has completed 5 years in the organization, are they eligible for gratuity? Does the gratuity calculation apply only for 5 years and not more than 5 years if an employee has completed 7 or 8 years?

Thank you.

Gratuity Calculation for Non-Government Employees

For non-government employees (private company employees) who are not covered under the Gratuity Act, the formula below is followed for calculating the Gratuity: Gratuity = Average Salary x 1/2 x Number of years of service. "Average" means 10 months of salary (Basic + DA + Commission) preceding the month of retirement/resignation.

In the above calculation, "not covered under the Gratuity Act" refers to which category of companies? Generally, more than 10 employees are applicable, and we are using the formula: Basic x 15/26 days x years of service. This is where the above will work out. Can anyone please explain? Moreover, explain the new 20 lakh slab formula amendment.