Gratuity Contribution: Is It Employer-Funded or Deducted from Your Paycheck?

Hello to all, I'm Biseshwar. Can anyone suggest what the contribution rate of gratuity is? Is it contributed by the employer or deducted from the employee?

There is no contribution to gratuity. It is an amount payable by the employer (employer alone without taking any amount from the employee as a deduction from his salary) when an employee leaves after serving for a long period. Therefore, it is a reward for long service.

In order to avoid confusion regarding what constitutes long service and what should be the amount payable for the long service, it was decided to have legislation, and Kerala state enacted the Kerala Industrial Employees Payment of Gratuity Act in 1970. Later, a central Act was passed in 1972, viz, the Payment of Gratuity Act, 1972.

As per the above Act, the service for entitlement of gratuity is fixed at five years. Therefore, any employee who is leaving the establishment to which the Act applies, after completing at least five years of service, will receive gratuity at the rate of 15 days' salary at the time of leaving for every completed year of service. Any fraction of a year of service above six months shall be taken as a year. Therefore, if an employee is leaving after completing, say seven years, six months, and one day, then he will receive gratuity for eight years. It is to be paid by the employer alone, and no amount should be taken from the employee towards it.

Regards,

Madhu.T.K

There is a company named Robert Bosch that deducts 4.81% of the Basic Salary towards Gratuity. This money is collected over a period of 5 years, and then the employee can retrieve it. Is this the correct procedure?

Thank you.

No, not at all. Gratuity amount should not be deducted from the salary. It is a payment to be made by the employer alone. It is okay that it is a cost to the company, but it should not be deducted from the monthly salary.

Moreover, the amount payable at the time of an employee's leaving, which may take place after 10 years, 20 years, or even 30 years, will have to be calculated based on the salary of the employee at the time of their departure – that is, 10 years, 20 years, or 30 years, as the case may be, from now. Is it possible to work out that future salary?

Regards,

Madhu.T.K

Compulsory investment of gratuity fund in LIC is subject to notification by the state government in this regard. Please read "With effect from such date as may be notified by the appropriate Government in this behalf." This implies that this is mandatory only when the state government has notified the date on which this provision, i.e., section 4A, becomes effective.

What is the plain meaning of gratuity? Something given voluntarily or beyond obligation, usually for some service.

This being the meaning of the term, the question of employees being asked to contribute does not arise. Learned posters have clarified the legal position clearly in earlier posts.