Gratuity in CTC: Can Employers Set Aside Funds Before Five Years of Service?

Normally, gratuity is eligible for payment after the completion of five years of service. At the time of appointment, can the employer set aside a portion of CTC for gratuity payment (which may accrue only after five years)?

Hi,

It is completely at the discretion of management to decide whether to include gratuity in the CTC or not. So, you can set it aside.

Dear Colleague,

Although gratuity is payable after completion of 5 years, the employer has to make provision for this liability from day 1 (i.e. the day the employee joins the establishment). Hence, employers generally negotiate CTC inclusive of the gratuity amount.

Secondly, any employer wants the employee to stay with the company for a long duration because the cost of recruitment nowadays is high. However, if an employee is a job-hopper, this aspect indicates to the employer whether the employee will stay for at least 5 years or more. It is ultimately the management's discretion, as suggested by Bhandhavi.r.

Dear Mr. Srinivas,

Gratuity calculation on CTC depends purely on the management. Normally, many organizations calculate it based on Basic+DA only for employees with a minimum of 5 years of continuous service.

Thank you,

Dear Manmeet,

Gratuity is not calculated as a percentage; it is determined by the formula (Basic + DA) * 15/25 * Number of Years of Service. The maximum amount that can be granted is 350,000/-. Additionally, any period of service exceeding 6 months will be considered as one full year.

Thank you.

Let's say your package is 5 lakhs. You know that your PF is deducted from your salary. Considering components like performance incentives, gratuity, income tax, and other standard components, when you get your salary slip, you find that there is something missing. A portion of your salary is not documented.

Surprisingly, when you calculate the missing amount, you find that it is equal to 12 times your monthly PF deduction. Hold on a minute here. Relax and unfold your salary slip. Now calculate your monthly gross income. Then annual gross and try to confirm your CTC. You will find out yourself.

Yes! The PF deduction that shows on your salary slip is the company's contribution. Your contribution is not documented on your slip. It is documented nowhere, not even in the offer letter or the agreement letter.

I have taken help from another blog to answer this question. Thanks to that person too.

Hi,

I am sorry for putting my question in a wrong manner. I wanted to know, if I have to include gratuity in the CTC of an employee, how will I calculate the amount that needs to be deducted every month. Will the same formula for calculating the Gratuity be used? For example, if the basic is Rs. 10,800.

Dear Manmeet,

The gratuity component depends on the LIC scheme you are taking. In our organization, it ranges from 4-5.5% of the PF base, with it being set at 4.9%.

Seniors, please correct me if I am wrong.

Gratuity Calculation Formula

Gratuity is calculated based on a formula: Basic + DA / 26 = One day's salary. As gratuity amounts to 15 days' salary for every completed year of service, you can multiply it by 15 to determine the gratuity for a year. The standard rate for gratuity is 4.8%. Organizations typically calculate gratuity at 4.8%.