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.

Understanding Gratuity and CTC Allocation

Although gratuity is payable after the 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.

Regards

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.

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%.