Gratuity in CTC: Can You Get It After Just 2 Years with the Company?

If gratuity is part of the CTC structure and is given at the time of appointment as well as increment, is an employee eligible to receive gratuity if they have not completed 5 years but have been with the organization for 2 years?

As the company includes gratuity as part of CTC, will the employee receive gratuity or not?

Regards,
Jadughar

As per the Payment of Gratuity (POG) Act, the employer is liable to pay gratuity only after the completion of 5 years of continuous service.

Eligibility for Gratuity in CTC

Now, your query is: if in the Cost to Company (CTC) of an employee, the employer includes the burden/cost of gratuity, and the employee leaves the service before completing 5 years, is the employee eligible for gratuity in this case?

There may be different opinions on this matter. In my opinion, the employee is not entitled to gratuity. Gratuity is payable only after the completion of 5 years of continuous service. CTC is not salary; it is a concept.

Understanding Gratuity in CTC

The cost of gratuity in CTC is towards the provisions of gratuity which the employer is liable to provide under the Act. If the employer covers the employees in a gratuity policy with an insurance company, then the employer has to pay this amount to the insurance company as a premium. The insurance company does not refund the premium paid if any employee leaves the service before completing 5 years.

To avoid any ambiguity, I advise my clients to mention in the footnote of the CTC structure that gratuity is payable only after the completion of 5 years of continuous service.

Regards.

As per my opinion, if an employee has completed four years of continuous service and has worked more than 240 days in the fifth year, they will be entitled to payment of gratuity. There is a judgment of the Madras High Court on this matter from 1998. You may refer to it.

I believe you need to familiarize yourself with this matter. This forum has discussed the judgment you are referring to numerous times. I felt compelled to respond so that the viewers/readers are not misled. The judgment is binding only within the jurisdiction of the HC: Madras.

Kindly let me know if you need further assistance or clarification on this topic.

Best regards

Thank you for your valuable comments. However, in our company, employees are saying that since gratuity is included in the CTC, it should be paid whether we have completed 5 years or not.

According to the Act, gratuity is payable only after completing either 5 years of service or 4 years and 240 days.

Is there any documentation or information available indicating that it is not mandatory to pay gratuity if it is shown in the CTC for employees who have not completed 5 years?

Regards,
Jadughar

Gratuity Eligibility After 4 Years and 8 Months

An employee should be paid gratuity on completion of 4 years and 8 months of continuous service. If there was any break in service within this period, the employee shall not receive the gratuity benefit.

Gratuity as Part of CTC

The discussion is very old, but the subject remains relevant as long as gratuity is considered part of CTC. The total gratuity component of CTC for the first 5 years will be payable only upon completing them. In fact, such employees get more as gratuity would be calculated at the 5th year's rate of basic & DA, if any. If it is not specifically discussed, the total component for a period of less than 4 years and 10 months will not be legally payable as the Act is not applicable for such a length of service. This will surely clarify doubts for all.

Regards,
Shrikant Prabhudesai

Gratuity Payment Policy

The payment of gratuity will be made after the completion of 5 years of service. Companies will show the gratuity amount in the CTC, but they will not pay it if the service is less than 5 years.

Regards,
D. Gurumurthy