Gratuity Dilemma: How Do You Handle Payouts for Short-Term Employees and Expats?

The organization that I work for has Gratuity indicated (on a monthly basis) in the salary structure. It is not paid out on a monthly basis but settled as per The Payment of Gratuity Act.

I would like to know if:

1) In this scenario, upon separation, even if the employee has not completed 5 years in service as of the last working day, would he/she be entitled (from a legal perspective) to receive payment against this component for the number of months worked? For example, if the monthly gratuity quoted in the employee's salary structure is Rs. 1,000/- and the employee worked for 12 months as of the last working date, would he/she be entitled to receiving Rs. 12,000/- upon exit under this 'Gratuity' head?

2) We also have expats working in our organization, and their salary structure, while working for the Indian entity, includes Gratuity (quoted on a monthly basis). Expats do not appreciate the fact that as per 'The Payment of Gratuity Act,' the accumulations under this head can only be eligible for payment upon completing 5 years of continuous employment with the Indian entity. Since most expat tenures are for 1-2 years, they consider this aspect affecting their net take-home pay and view the statute unfavorably from a financial perspective. We are now considering allowing employees to be entitled to payment under this head (if they exit/leave us) at, for example, 25% after two years, 50% after three years, 75% after four years, and 100% after completing 5 years and beyond. We also believe this may have retention value since 2 years is more practical than 5 years from the employee's perspective. Can anyone provide guidance on what their respective organizations are doing in this regard?

Gratuity is an amount payable by the employer to an employee when he leaves the company after a long and meritorious service. It was just to give a specific definition as to what constitutes long service that the qualifying service of five years was fixed. Still, the very purpose of the Payment of Gratuity Act is to gift an amount (for that also a specific meaning has been given) to an employee who retires or otherwise leaves the company after a certain period (five years) of service. It is NOT A PART OF SALARY at all. But the new generation establishments show it as a part of REMUNERATION, perhaps to make the salary appear more attractive and to attract (or rather deceive, I believe) employees.

Since gratuity is payable exclusively by the employer and that also within 30 days of it becoming due even if it is not demanded by the employee, no recovery in the form of "contribution" from salary is permitted in the case of gratuity. At the same time, if you give an appointment order stating a gross salary including an element of gratuity and deduct it from the salary every month, it will become payable even if the employee has not completed the qualifying period of five years. This is because gratuity is not an amount recoverable from the employee, and any amount recovered from the salary will be given back to the employee in the same or other forms, like Provident Fund, ESI, or Welfare Fund, etc.

Please see the article in the following link:

Madhu.T.K: [CTC Vs BTC](http://madhu-t-k.blogspot.com/2010/02/ctc-vs-btc.html)

Regards,

Madhu.T.K