Confused About Gratuity in My CTC: Can I Claim It Before 5 Years?

Dear HR Friends, I am seeking clarification on the correct rules applicable to the Gratuity Amount. A portion (say Rs 1000.00) is shown in the annual CTC breakup, and the same I understand is kept aside. This is neither reflected in the salary nor do I have any acknowledgment stating that this is being deducted from my CTC. I believe the said amount is deemed to be kept aside, while I have not received it in either form.

My Queries

My queries are as follows to gain insight into this problem:

1. Is it legally right to use the word Gratuity under the CTC Breakup and be a part of my CTC? I understand Gratuity is more like a Loyalty amount eligible to an employee after completion of 5 years or 4 years and 240 days.

2. In my case, since it is part of my CTC, when will I be eligible to claim it?

3. Should a minimum of 5 years / 4 years and 240 days be a must?

4. As and when I leave (within 4 years), can I get back this amount from my employer since it is part of my CTC - meaning the number of months worked times the amount and deducted by the management?

I need the opinion/rules from my Senior HR Luminaries so that I need not get carried away by one-sided thought processes.

Look forward to your replies.

Regards, Srinivas

From the legal perspective of the Gratuity Act, it has nothing to do with your monthly salary as in the case of P.F. or ESI. It is the amount payable by an employer to an employee on their resignation or retirement (in the present context of your case), provided they complete a continuous period of five years of service. However, from a contractual perspective, the employer may be showing it as part of the cost to the company. You will not be eligible for gratuity if you leave the service within four years unless the reason for leaving the service is on account of any disability.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
[Phone Number Removed For Privacy Reasons]

Answers in BOLD

1. Is it legally right to use the word Gratuity under the CTC Breakup and be a part of my CTC? I understand Gratuity is more like a Loyalty amount eligible to an employee after completion of 5 years or 4 years and 240 days.

Every company is projecting their cost of the employees annually in their budget; they show it in the CTC of employees' appointment letter. There is no wrong in it. The company is working out gratuity for the allocation of funds.

2. In my case, since it is part of my CTC, when will I be eligible to claim?

You will be eligible only when you resign from the company after completing a minimum of 5 years.

3. Should a minimum of 5 Years / 4 Years, 240 days be a Must?

You have to work for 5 years. There is a judgment given by the Madras High Court saying 4 years and 240 days the employee is eligible for gratuity. But the organization will encourage only above 5 years.

4. As and when I leave (within 4 years), can I get back this amount from my employer, since it is part of my CTC - meaning the number of months worked times the amount and deduced by the management?

No, you are not eligible for the amount. Management is not deducting your salary for gratuity. It is only shown as a benefit for you.

Regards

True, there is nothing wrong if the employer includes gratuity as a part of CTC. However, only the annual contribution (15 days' salary, Basic + DA) to the Gratuity fund should be mentioned in the CTC.

Hi Guys, thanks for the info you provided regarding gratuity, but my company does not pay any gratuity to our employees, even when they have completed 5 years of service.

This will be done mainly in a proprietorship/partnership firm only. Here, the rules are made/changed for their own convenience. Due to high attrition/turnover today, many organizations are offering various benefits, one of which is gratuity. In the near future, your company might also implement the same. Alternatively, try to speak with your HR to discuss the gratuity plan with the management.

Thank you.

The answer given by B. Saikumar and Shenbagrajan is absolutely correct. Thanks to both of them.

Regards

Gratuity Deduction in CTC and Reimbursement

The employee, if he shows gratuity deduction in CTC, is bound to reimburse the amount, whether you have completed the eligible period for gratuity or not. Once you complete the eligible period, you are eligible for only the gratuity amount according to the Act, which is definitely higher.

Regards

Gratuity and Superannuation are the retirement benefits given to employees and are reflected in the Total Cost to Company (TCTC) section. These benefits are provided only when employees complete the required years of service. Therefore, the company will not reimburse the amount unless the employee completes at least five years of service for gratuity.

Thank you.

I fully agree with the views expressed by ssraomys. The candidate agrees to join only after ensuring that his expectations are met with the CTC offered. Considering this will be paid to him, he has every right to demand the amount of gratuity even if he leaves before completing 5 years of service. However, this will not be applicable for amenities such as uniforms, canteen subsidy, etc.

Please let me know if you need further assistance.

Even if the employee is filing the case under the law, he will not be eligible for getting that amount. The gratuity will fall under the head of retirement benefits in TCTC.

If you agree that the employee has to be paid, do you also agree he has to be paid his variable benefit mentioned in the CTC? Unless he fulfills the target, he will not receive the variable pay. Similarly, unless he completes 5 years, he will not get his gratuity amount.

Gratuity and superannuation are only retirement benefits given by the organization to employees who serve long term.

Gratuity Amount in CTC: Legal Considerations

We are discussing the issue of whether the gratuity amount should be mentioned in the CTC. It is well accepted that mentioning gratuity in the CTC is not contrary to any law, nor is it against the law of natural justice.

The most important question is what amount of gratuity should be mentioned in the CTC. Should it be the annual employer contribution towards the gratuity fund, or should it be the total gratuity amount payable upon completion of 5 years of service?

If an employer mentions the total gratuity amount payable upon completion of 5 years of service in the CTC, it would be absolutely wrong on the part of the employer and can be challenged on different grounds in a court of law. However, if the annual employer contribution towards the gratuity fund is mentioned in the CTC, it can't be challenged because the employer is actually contributing that amount to the gratuity fund.

Regards,
Kamal

Understanding CTC and Its Implications

What is CTC? It stands for Cost to Company for hiring an employee. This concept of CTC has emerged in the last 15 years, and now all employers hire individuals based on CTC. Previously, there used to be gross negotiation.

Employers calculate the cost to hire a person, and no benefits will be given if the time of entitlement is not completed. Gratuity cannot be paid to an individual before completing 5 years of service.

Regards

Clarification on CTC and Future Hiring Costs

I would like to add, "CTC is the current hiring cost and not the future 5 years hiring cost of an employee."

My company is paying gratuity if the employee has only completed 5 months. Is there any possibility of the same? Please help.

Gratuity is paid only if the employee has worked in an organization for more than 5 years. Even though we have a judgment by the Madras High Court that if an employee serves for 4 years and 240 days, they are eligible for gratuity, we cannot apply the judgment wherever we want. Each organization has its own policy, and even though the gratuity act is common, the company can have a policy stating that an employee must work continuously for 5 years to be eligible for gratuity. In many company HR manuals and employee handbooks, it is clearly specified that the employee must serve 5 complete years in the organization for gratuity eligibility.

Unless there is an amendment to the gratuity act, the standard followed by most companies is 5 years.