Gratuity Confusion for On-Site Employees: Are We Calculating It Right?

Gratuity Payment Issue for On-Site Employees

Our company is facing a problem regarding gratuity. We have employees who resign while on-site and have over 5 years of service at the time of resignation. While they are deputed on-site, they are paid only a local salary. This on-site local salary includes a component called the Indian Basic salary converted to local currency, and an equivalent amount of 12% is deducted towards PF contributions. This amount is increased year on year, during which the Indian basic salary and the PF proportionately change.

However, when making gratuity payments, our organization is calculating the Basic salary as the last drawn basic salary while in India, which could be quite different compared to the current basic Indian salary converted to the local on-site currency and paid. Is this correct as per the gratuity policy act?

As per the Gratuity Act, gratuity is calculated based on the last drawn basic salary. Since they are on-site, do you have any policy for the payment of gratuity for on-site employees? If not, you should prepare one. As far as my knowledge goes, I believe they can convert the value of the basic salary to INR and pay accordingly.

I am not a legal expert on this, but the way I see it is that we basically have to consider two points:

1. Since the salary has a clearly defined Indian Basic Salary component while on-site, the last such basic salary should be considered.

2. Does the law or any case in point define how to treat employees of Indian companies deputed abroad? My sense would be that since they have been employed by an Indian company in India, deputation does not change the applicability of the Gratuity Act in its true form.

I would love to see some expert advice on this.

I presume that the onsite salary will naturally be more. You are paying PF contribution on the local salary, i.e., it is treated as basic. The same logic can be applied to gratuity as well. There is an HR issue in this. An employee who has only a few more months to complete 5 years and is posted onsite will be in a more advantageous position than his counterpart in India.

Regards,
Varghese Mathew