Who Pays for Gratuity: Is It Deducted from Your Salary or Covered by the Employer?

Gratuity Payment Responsibility

I have a doubt regarding gratuity payment. Who is supposed to contribute the gratuity amount - the employee or the employer? If the employer promises to pay a salary of INR 80,000 per month, and the gratuity amount is calculated at 4.33% of the basic salary, will it be deducted from the employee's salary, or will it be contributed by the company?

Please explain.

Regards,
Jay

A very controversial question. First things first, it is the company that pays gratuity to employees who have completed 5 years of continuous service. There are two methods prevailing in the industry.

Gratuity as a Component of CTC

First, gratuity is considered a component of CTC and is included at 4.81% of the basic salary. Companies do this as they consider that every penny spent on an employee is a cost to the company.

Gratuity Not Included in CTC

Second, it is not included in CTC and is paid to employees who complete 5 years of continuous service at the time they leave the organization. Hence, it is NOT deducted from employees' salary but shown as a part of CTC. I hope you understood.

Though the company is showing Gratuity in CTC, it is mandatory for the employer to pay Gratuity after 5 years of service completion. Kindly confirm.

Hi,

In the normal course, whatever an employer spends on benefits for employees such as employer PF, Gratuity, premium payable for LIC, etc., is added to the CTC of the employee. When an employee completes five years of continuous service with the same employer, the employer is required to pay gratuity to the employee at the time of separation.