Gratuity in CTC: Should Employees Get Their Share if They Leave Before 5 Years?

Eligibility for entitlement of gratuity is after completion of 5 years of service with an organization. When gratuity is a part of CTC and an employee resigns before completing the stipulated period of 5 years, he loses the share of gratuity that has accrued up to the period of his service which is less than 5 years. Under such circumstances, what happens to the share of gratuity of such employees who resign before the completion of 5 years? This is with particular reference to the practice of providing for gratuity in the book of accounts of the company, and this provision is made even for those whose service period is less than 5 years. If so, should not the employees be paid their share of the gratuity if they resign from a company before 5 years even though the statutory requirement is very clear? I think gratuity should be provided only after an employee completes 5 years of service. Why should an employee lose money when it is a part of his CTC? This topic is only for discussion. I am well aware of the existing rules.

Hi Anand,

I agree with your valid points. Nowadays, there is no particular law, to my knowledge, for CTC, and the company gets the benefit of choosing whatever components they want to include in it. By definition, it is acceptable that the cost is accrued by the company, but only definitely after 5 years. We have observed many settlements/payment of Full & Final in such situations when an employee resigns before 5 years. Eligibility only comes after 5 years, and CTC can be revised at that time only.

An employee who is going to join at that point in time cannot be forced to exclude Gratuity as part of it. We (HR People) always try to convince them to join us, highlighting the company's loyalty and assuring them that they will stay with us for that period.

The problem also lies with the company because if an employee does not resign before 5 years of service, the company has to bear the Gratuity cost from the Date of Joining.

In my opinion, companies that have Gratuity as a component of CTC should provide the Gratuity amount at the time of Full & Final to the employee.

I would like to request HR professionals to share their opinions and experiences with us. If they are working in a company that operates under any laws/notifications from local or central government, please share with us.

Regards,

Santosh