Understanding Gratuity in CTC: Is It Legal to Deduct and Pay After 5 Years?

Dear Experts,

My company pre-paid CTC, and in CTC, it deducts the Gratuity amount and states it will be paid after 5 years. Could you please advise on what the Gratuity part of CTC means? Also, kindly advise if this practice is legal or not.

Regards,
Rakesh Kaushik

Gratuity and CTC Practices

Gratuity cannot be a part of CTC. If an employer insists on including it as part of the CTC, then that employer must reimburse the deducted amount even if the employee leaves before completing 4 years and 222 days. It is considered a very poor practice for any employer to incorporate Gratuity as part of CTC.

Regards,
Arpit Jain

Gratuity as Part of CTC

Nowadays, companies consider Gratuity as a part of CTC as it is a fixed liability at the company's end. This topic has been discussed at length in various other threads.

Links to the discussions:
- [Gratuity Payment Discussion](https://www.citehr.com/439970-gratuity-payment.html)
- [Gratuity Discussion](https://www.citehr.com/440302-gratuity.html)
- [Payment Gratuity Discussion](https://www.citehr.com/435363-payment-gratuity.html)

Understanding Gratuity as Part of CTC

Gratuity is an employee's cost to the company. To make the payment of gratuity to eligible employees, a fund has to be created. There are well-defined processes for the management of this fund. There is nothing wrong with employees' contributions to this fund (as per a company policy) being reflected as a part of the CTC.

In this context, a company is free to count any employee benefit schemes as a part of CTC. It is to be noted that there is no definition of the term CTC; it is an internal process for cost analysis. Any employee-related expenditure can be legitimately considered as a part of CTC.

CTC is all the cost that a company bears for an employee, which may include - Basic pay, DA, all allowances, perks, retiral benefits (PF+Gratuity, etc.), insurance, clothing, paid vacations, etc. Now, the components may vary from company to company. There is nothing wrong on the part of your company to consider gratuity expenses that the company will bear at the time you become eligible to withdraw as "Cost to Company."

Regards,
Shailesh Parikh
Vadodara, Gujarat
[Phone Number Removed For Privacy Reasons]

Gratuity contribution by the employer needs to be reckoned as a component of CTC, just like contributions to PF, Medical Insurance, other welfare measures, etc. It is wrong to say that the same is deducted from the payment made. It is only an exclusion from monthly/prepaid payments, and therefore, there is nothing odd in this.

Regards,
S. Dass

Understanding CTC and Gratuity

CTC means Cost to the Company, which is a general budgetary forecast of engaging an employee by the company. You must understand that by engaging a person, the company is bound to pay certain benefits besides paying them regularly as part of the salary, and the entire cost has to be accounted for somewhere. That is why a new term was coined, i.e., CTC, which includes your gross and net salary and other benefits like mediclaim, insurance, gratuity, superannuation, and PF, etc.

If the gratuity is deducted from your gross salary, then it is incorrect since gratuity is a reward given by the company for the long and meritorious service rendered by the employee. Hope the doubt is cleared on CTC aspects.

Regards

Gratuity as Part of CTC

Please let me know whether gratuity can be considered as a part of CTC if an employee joins an organization and, considering the age of retirement, his job length is likely to be less than 5 years. How will the organization consider the payment of gratuity in such a case? Please help me to understand.

Regards,
Amar Bir Singh

Hello! New Year Greetings!! In such a case, you can make the payment as ex-gratia rather than terming it as gratuity. This might solve the issue to a certain extent.

Regards,
amar bir singh