Gratuity Dilemma: Do We Repay if Employees Leave Before 5 Years? Seeking Advice!

Gratuity Query for Factories Act Compliance

I have a query regarding gratuity. We are registered under the Factories Act, and gratuity is applicable to our industry. We started in the year 2010, and we began including gratuity as part of the employees' CTC. If we continue to do the same, do we need to repay that amount even if the employee leaves before completing 5 years?

In the same context, if an employee completes 5 years and continues service in the company, and then leaves in the 7th year, how is the gratuity calculated? Do we need to pay for 3 years (15 days of basic and DA per year)? Please suggest on this query.

Regards

Gratuity is paid when an employee is leaving the organization. It is calculated based on the last drawn salary. If an employee leaves the organization after 7 years, their share is calculated as 7 years multiplied by 15 days' wages per year, based on the last drawn wages only.

Thanks a lot for your valuable reply. Shall we include gratuity in their CTC or not? If we include it in the CTC, we will need to repay it even if an employee leaves within 5 years. Please suggest to me on this. What other returns need to be filed if the company is registered under the Factories Act? I am working at Palace Toyota, and we are the dealers of Toyota Cars.

Regards,

In normal cases, all companies include all employee benefits in CTC, but the same should not reflect in Gross Pay. If an employee leaves the organization before 5 years, then there is no need to pay gratuity. However, if the management decides to pay, you can do so.

Gratuity is a payment for an employee who has completed 5 years of continuous service in any organization. As a practice, all include the gratuity amount in their CTC.

Gratuity Calculation Formula

The formula for calculating gratuity is Basic + DA x 15 days / 26 days.

Regards,
Devendra

Informative Gratuity Presentation

This is a really informative PowerPoint presentation prepared by Ms. Anjali Sengar (a CiteHR member) that I found on another post related to gratuity. I'm certain it will be helpful to you:

[Gratuity PPT](https://www.citehr.com/attachments/138931-gratuity-gratuity.pptx?status=logged)

Post address: [Gratuity Information](https://www.citehr.com/444942-gratuity.html)

Gratuity Inclusion in CTC and Payment Conditions

Even if it is included in the CTC, gratuity becomes payable only after an employee completes 5 years of service. To provide transparency, make it a point to mention in the offer letter itself that CTC includes a contribution towards gratuity payable to the employee but is payable only after the completion of 5 years of service and as per the provisions of the Gratuity Act. This will provide clarity to the incumbent employee before coming on board, and we can preempt any grievances that would arise.

Regards,
Haragopal
GM-HR
Solar Semiconductor Pvt. Ltd.
Hyderabad

Understanding CTC and Gratuity

CTC is independent of actual pay. CTC is what an employee costs the company, not what the employee gets. Some companies, for example, also factor in training costs in CTC. So if training does not happen in a particular year, do you pay the training fees to the employee?

Since you are so worried about CTC, have you considered that the amount you actually pay on gratuity at the end of 5 years is actually much higher than the amount you are putting in the CTC?