Is It Fair to Include Gratuity in CTC? Seeking Advice from Experienced Professionals

Hi Seniors, my management has included gratuity as a part of the CTC. Is it possible to do that? From my understanding, gratuity is something extra given by management as a gesture of gratitude for continuous service in any organization. I look forward to your kind reply.

Best Regards,
Chaithanya

Good topic. I also have confusion on this subject. Taking gratuity for CTC will not provide an accurate cost report. This is because gratuity eligibility only occurs after completing 5 years of continuous service. If we include this cost in monthly/annual reports at the current rate, we may not offer the same rate when employees leave, leading to a complete mismatch. I still do not understand how they have managed it.

Theoretically, it is correct that the company provides it as gratitude. Since it is not given in words but in money, it incurs a cost to the company. However, the company cannot factor this in for salary offers or packages.

Gratuity as Part of CTC: A Debatable Topic

This is a highly debatable topic and often found to be inconclusive.

Gratuity is provided by the employer to be paid to the employee when he/she decides to leave the company after a minimum of 5 years of continuous service. Certain companies prepare a list of existing employees eligible for gratuity and make provision for an equal sum for future disbursement (if the scenario arises). They set aside the Gratuity Provision Amount as a separate fund and utilize it only when required to be paid.

When gratuity is included as a part of CTC (as an annual or monthly emolument), it should necessarily be starred (*) with a note given at the end. For example: *Gratuity will be given only after the completion of a minimum of 5 years of continuous service and as per the provisions of the Payment of Gratuity Act, 1972.

We all agree it is indeed a cost to the company, but rather than considering it as a benefit to the employee, employers tend to include it as a component in CTC and inflate/increase the CTC amount (which gives them a slight advantage/attractiveness in the offered salary).

Conclusion: Understanding CTC and Gratuity

In conclusion, there is no standard/legal format of CTC (as far as my understanding goes); it is just an indication from the employer of what they are going to offer to a prospective employee. It is up to an applicant/aspirant to be extra careful, read the CTC breakdown, and accept the offer.

I would be happy to see more contributions to this thread.

Understanding Gratuity Calculation and Eligibility

I want to know what the calculation of gratuity is and who is entitled to gratuity.

With regards,
Anil Asiwal
Contact No. [Phone Number Removed For Privacy Reasons]

The answer to your query is as follows:

Eligibility: 4 years and 240 days

Amount: For each year of service completed, the employee earns 4.81% of their annual basic + DA salary, based on the last drawn salary, subject to a maximum limit as per the statute (currently it is Rs. 10 Lakhs).

Regards,
Chaithanya

Gratuity as Part of CTC

Employers, for their benefit, try to include gratuity as part of the CTC. However, as per the Gratuity Act, it should be paid by the employer as a recognition of an employee's long tenure with the organization.

Regards,
Deepak

If an employee has 3.5 years of experience and is going to retire without completing 5 years, the employer may reflect this in the employee's cost-to-company (CTC) and not pay the full amount upon retirement or forced resignation. In such a situation, the employee has the right to raise their voice legally. They can approach and send a lawyer's notice to the company. Please advise.

For me, this is a new question. A person who is retiring from service without completing 5 years, having only 3.5 years of service, then gratuity showing in his CTC, was eligible for claiming or not.