Employee Disputes Gratuity Calculation: How Should HR Handle This Legal Threat?

Dear Seniors, kindly guide me. We have our office in NCR. One of the employees left after working for 5 years and 1 month. As per the law, we provided him gratuity according to the company's standard salary structure in his full and final settlement. However, he does not agree with the gratuity amount as he mentioned that no CTC breakup was provided to him at the time of joining.

After discussing with management, we explained to him that even though a salary breakup was not given, Form 16 was provided to him each year, clearly indicating HRA and transport allowance. He is now insisting that the remaining salary shown in Form 16 should be considered as basic, and gratuity should be calculated based on that amount. His salary was paid through account transfer.

As the HR Head, I seek guidance on how to handle this situation. He is threatening to take legal action.

Regards,
D. Singh

What was his role in your company? Did you issue an appointment letter to him?

If possible, could you please provide the clause regarding "Remuneration" as shown in the appointment letter.

Thanks,
R K Nair

Salary Details

Thank you for your reply. We have issued him an appointment letter, and the salary clause is stated as follows:

He was an Executive Assistant to the M.D. Your gross Salary (CTC) is Rs ------------------------/pm. If any statutory deduction or contribution like PF, ESI, etc., on behalf of the Company is required by any concerned authority, it shall be accommodated from your gross salary (CTC). Your salary structure/payments shall be governed by the rules and regulations of the company. Salary is a confidential matter and cannot be disclosed or discussed with anyone internally or externally except the MD, Chairman, or HR Dept.

Confidentiality of Salary Information

Your salary package is based on, besides your overall experience level in the industry, your educational qualifications, and the experience and knowledge level assessed at the time of selection, particularly in the skill sets relevant. Therefore, the salary package offered to you is peculiar and personal to you. Salary increase or adjustment is not automatic but depends upon your individual performance as well as your group performance, if any. Salary is a confidential matter and cannot be disclosed or discussed with anyone internally or externally except the MD, Chairman, or HR Dept.

Kindly guide me.

Regards,
Daisy Singh

If the aggrieved employee goes to the Court of Law, it can pose a threat to your company, as you have not made any deductions to any fund. Then how could you issue Form-16 showing his earnings and deductions? I am afraid you have to ultimately agree to his argument.

Thanks,

R K Nair

Dear Daisy, I would like to inform you that the concept of CTC and Gross are different. Gross is nothing but all earnings and deductions, whereas CTC is the combination of fixed and variable components in which earnings, deductions, and performance-linked incentives have been clubbed together to form a total cost, which we refer to as the cost to the company.

We must know the basic amount for calculating gratuity, which is missing in this case. Because of this, it is difficult to justify the eligibility and applicability of the payment of gratuity to the employee.

Regards, Janardan

Hi, the basic salary is ₹6,500 upon which the company is calculating gratuity, whereas his take-home pay was ₹48,348 per month. Now, the issue is with the Form 16 issued to him last year by the company, which mentions the following:

Salary as per provisions contained in Sec(17)1 is ₹3,74,684
Travel Allowance: ₹6,000
Transport: ₹9,600

Now, he is saying that the balance salary (i.e., paid against Sec(17)1 minus Travel & Transport) is his basic, and he is entitled to gratuity on that amount. Please reply.

Regards

Understanding the Difference Between Take-Home Salary and Basic Salary

The difference between take-home salary and basic salary is significant. Additionally, the clause in the appointment letter does not provide a proper breakdown of the salary package, including specific allowances. It appears that your establishment may not have obtained his signatures on the payroll and payslips, which detail the salary components, earnings, leaves, deductions, and net pay. This could indicate that he was not fully aware of the salary structure.

If this is the case, he can submit an application to the Controlling Authority under the provisions of the Act.

Regards,
P K Sharma

I strongly agree with P K Sharma. Did you provide any payslip or salary statement so that you can prove that the employee is aware of the breakup of his/her salary? If not, then the employee is correct and can file an application to the controlling authority for Gratuity Calculation mismatch.