Payment Of Gratuity - Payment Of Grautity [Thread 435363]

Hi, I am working with a small MNC where 60 employees are working, some of them have completed five years of service. We were deducting a monthly contribution from their salary. Now they are insisting to stop the deduction and add it to the monthly gross. Now my query is, as we show gratuity as one of the components of their CTC, if we stop the deduction, then is the contribution payable from the company account? Kindly suggest what should be done in this case.

Aniket

Hi Aniket,

It depends on the company policies. Normally, gratuity will be part of CTC. Once you start the gratuity part in CTC, then you can't remove it from CTC. Advise the employees, even if they have been working for 5 years or more, that it should be deducted from CTC only. Because gratuity will be paid only at the time of retirement or when leaving the organization, and it will be calculated based on the number of years of service. It is not limited to just 5 years.

In my opinion, the employees are asking the company to stop deductions from their salary but contribute from their side and add it to the CTC. They are right in the sense that gratuity, in its true sense, is an amount that the organization pays as gratitude to the employee for long service. Many companies deduct it from the employees' salary, whereas it should be paid by the employer and added to the CTC.

I think the employees are right in their stance as, in the current situation, they are being compelled to contribute the amount that is the liability of the employer.

Dear Aniket,

If the policy of your company's CTC states that gratuity is to be part of it, then it has nothing to do with 5 years completion of employees' tenure. It still remains a part of CTC. If, at this moment, based on their request you tend to change it, please keep in mind that it has to be a general change and all other employees about to complete 5 years in the company should also get the benefit, else it may lead to grievances.

The best thing would be to explain to all employees that gratuity as a part of CTC has nothing to do with 5 years. The company is still liable to pay gratuity for "N" number of years they work. I didn't understand the concept of adding gratuity to the gross salary. If it means adding the same amount of contribution under some other head in the gross salary, they are pointing towards an increment. In such a case, ideally you should not do so and introduce a commitment bonus, the amount of which can be decided by your management (e.g., Rs. 1000 * number of service years completed above 5 years. The amount can vary depending on the grade of the employee). This will motivate them and also give them the feeling of being recognized in the company.

Secondly, as Ms. Avika said, if the company is liable to pay to show gratitude and it should not be considered as part of CTC, then it must be from day one. Gratitude doesn't come in only after 5 years. This would further demotivate your employees who have not completed 5 years.

Please look into several other factors before bringing in the amendment. You must also understand that the management should be ready to accept this huge liability.

Regards,

Hiral

Dear Aniket,

Showing gratuity as part of CTC is not a right practice. This has to be accrued separately for MIS to the management. By incorporating it in CTC, you have made it look bigger than the actual amount. For an employee, what he/she receives in hand is more relevant than what they can expect after 5 years. Please make changes as requested by employees, or you may lose the talent for such a petty issue.

Regards,
Murali

Dear Aniket,

The deduction of gratuity contributions from the salary is illegal. Gratuity is a one-time payment by the employer upon resignation, superannuation, or termination. Therefore, employees do not have to contribute to it. However, since it has already been deducted, you can show a good gesture by adding it to the full and final payment, refunding any additional amounts taken from the employees.

Thank you.

Deduction of gratuity from salary is not correct. You can show it in CTC for costing or MIS purposes. If gratuity is paid from the amount deducted from employees, then where is the employer discharging his legal obligation.

Varghese Mathew
09961266966

Deduction of Gratuity from the Salary of the Employees is unlawful. Gratuity is an amount paid by the employer to the employee when he/she retires or leaves the organization. Moreover, it is a right of the employee to gratuity when he/she completes 4.6 years of continuous service. Convince the management of this.

Hareesh

Dear member,

I need clarification: what do you mean by deducting the amount of Gratuity from salary? If it means that the amount of gratuity is being deducted from the normal salary payable on a monthly basis, then the deduction is entirely illegal. You should not only stop the practice of deducting it from salary but also refund the amount deducted until now to the employees.

If the deduction from the salary is on account of Gratuity being part of CTC and not an actual deduction, then you will have to explain to the employees the concept of CTC, Gross Salary, and Take-home salary. Convince them that the practice adopted by you is in line with the practices adopted by many organizations.

Thank you.