Understanding Gratuity in CTC: Is It Paid Monthly or After 5 Years?

I am new to this forum and would like to have one clarification. Gratuity is paid to an employee who completes 5 continuous years of service in a company. Also, gratuity is the liability of the employer, and the employee does not have to contribute to it. Nowadays, companies add the gratuity in the CTC to increase the CTC amount.

Question about Gratuity in CTC

My question is that when gratuity is not paid each month, will the gratuity amount shown in the CTC breakup be paid each month to the employee? If yes, then would that not mean that each month gratuity is being paid to the employee from the beginning, and will that employee not be paid any gratuity after 5 years of service (on resignation or termination)? If no, then will that gratuity amount be deducted from the employee's salary each month even though the employee does not have to contribute to it?

Please clarify and assist.

The question is a little bit confusing, but based on my understanding, let me clarify it. Gratuity is a statutory contribution, and even though it is mentioned in the CTC breakup, it is not directly paid to the employee on a monthly basis. It is contributed in the name of the employee to the Gratuity Act (LIC). Only regular employees who have completed continuous service for 4 years and 240 days are eligible for gratuity (only at the time of leaving the organization, either by resigning or retiring).

If the provided answer does not address your query, please provide clarification in your question.

Hi, thank you for your reply. I completely agree with you. I just want to know if, in an employee's CTC breakup, gratuity is mentioned and if that employee leaves the organization before 5 years of service, then in that case, whether the company will pay the employee the gratuity amount that the company has contributed in the name of the employee to the Gratuity Act. Because in this scenario, the employee has not completed 5 years of continuous service but still, from his CTC, a monthly gratuity amount has been kept by the company in his name to the Gratuity Act. If the company pays the gratuity amount when the employee leaves either after 5 years or before that, then it's okay. But if not, then is the employee not at a loss as he is losing out on the money which was promised to him in his CTC breakup.

Regards,
Rachana Shetty

My father works as a D.E. engineer at GEB. A case was filed against him by the ACB in 1998, and he lost the case in court in 2005. The department terminated him in 2005. Ten days after his termination, he passed away due to cancer.

We have received the PF form from the department, but gratuity has not been given to us. Can you please tell me if we are eligible to receive gratuity if an employee is terminated due to an ACB court case?

CTC stands for Cost to the Company incurred for a particular job. The company must determine the amount to be spent on a specific person or job to establish their liability limit. The monthly contribution of 4.81% from your basic salary is accumulated until your tenure with the organization ends. However, you are eligible to receive it only upon completing 5 years of service.

This calculation is made to record the company's liability in the books of account as a provision for future use. The fund is a book value and is not deposited anywhere, including under the Gratuity Act, as you mentioned. Similarly, the provision for a bonus should also be made at the beginning of every fiscal year.

Just imagine the financial commitment of a company when 20-30 employees leave their jobs after more than 5 years of service. The provision for gratuity will help the company in situations like this.

I hope I have made it clear!

Regards,
S. Sethupathy
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