Gratuity Deduction - Gratuity Letter

Hi All ,
According to my knowledge gratuity is purely a employers contribution , but why does some companies mention the gratuity deduction in the offer letter salary break ups? an employee is not sure if he/she will spend 5years in the organisation or not , then how will this be possible to deduct from the employee salary?

Hi Sharon,
Yes, ideally they should not. But just to show the CTC attractive and also since this is an cost factor for them, they always show it in Salary Breakup while making the offer.
Ukmitra

Hi,
The gratuity is payable to employee by the employer after the completion of stipulated period of services as per the gratuity act.
Hence this becomes the cost to company as mandatory to show in salary breakup.However the same is not deducted from the salary earned by the employee.As regarding the period of service if an employee serves for 5years or not? does not mean that employer will not include gratuity component in the ctc sheet of the employee.However if the employee does not fulfill condition of service for availing gratuity,he will not be entitled to get the same.
In short gratuity is a kind of retention tool Used as welfare measure for employees,at least as hr person I think So.
Thanks.
Bijay.

Do not be too carried away by the sum shown as CTC.Calculate the net salary and benefits you get before accepting an offer.Mentioning gratuity and employers share of EPF is an attractive gimmick.They are the statutory obligation.
Varghese Mathew

Dear Sharon,

The gratuity component shown in the CTC break up is only the provision the company makes in the event the employee has to be paid gratuity at the time of his leaving the company when he has completed service as per the provisions of Gratuity act. It is not a deduction from the employee's salary.

Some companies contribute every year towards Group Gratuity scheme promoted by LIC of India. LIC of India furnishes an actuarial valuation of the liability of the employer every year and the employer contributes the amount indicated by LIC to bridge the liablity. When an employee leaves the employer submits an application for payment of Gratuity subject to the condition that the employee fulfills the criteria as stated above. Based on this application LIC of India effects the gratuity payment to the employee through the employer, subject to availability of funds in the employer's account. In other words only if the employer contributes and pays up the amount to LIC will the amount be available in the employer's account. So to fund this scheme employers include this as part of CTC in the salary component. However, if the employee does not fulfill the eligibility criteria for receiving gratuity he will not receive gratuity. The contributions paid by the employer in respect of this employee will be set off against the future liability of the employer.

Trust the matter is clear.

M.V.Kannan

Dear Senior & friends If Management is showing Gratuity as a part of Salary in CTC then ,if employees is living before 5 yrs then management has to pay his Gratuity because this is part of salary as per my thought ,except your valuable comments
reg,
snitu

CTC can be included in salary and there is no violation,however if company is deducting the CTC then employer has to pay even leaving the company before completion of 5 years.

Gratuity payment as Mr. Kannan said, it is cost working to engage an employee in the organiztion. Dont you calculate and prepare your estimate in conducting a function at home? Similar way an employer prepares a budget sheet (may be CTC working) while engaging an employee. It is the employee to accpet or reject.
There is no gimmick or tactic required for an employer to entice an employee. The company needs to keep the gratuity fund aside so that when the eligible employee put up an application for claiming his gratuity, the company must be in a position to pay as it is sttutory obligation.
There is no requirement of paying gratutiy when an employee separates before the stipulated period as per provisions of the Act, even it is shown in the CTC.
V. Balaji

Mr. Balaji is right.
However I feel like to add that Gratuity is statutory component of employees salary for which every employers is responsible to comply.
On the other hand, I find many employees are misled about its terms and conditions.Hr Persons on behalf of employer can use this privillage of gratuity as a retention tool through spreading proper awareness among employees under the directives and as per the policies of company.
Thanks
Bijay

Mr. Khannan has given a clear info about Gratuity. I have a small need clarification... in case employer contributes to LIC of India on yearly basis and an employee leave before eligibility, what will LIC of India acts in this case. Whether pays back to employer or reduced the proportionate amount in the next contribution..??