Gratuity Confusion: Do We Owe It If We Haven't Deducted From Salaries?

Hello Seniors,

One thing I would like to know about Gratuity: I am working for an IT Company. We haven't deducted any amount from the employees' salary as Gratuity. Still, if there is an employee who is leaving after completing 5 years of continuous service, is there a provision to pay the gratuity from the company's side, or is it okay since we haven't deducted from the salary, we need not pay the gratuity to the employee?

Expecting a reply.

Jeena

Dear Jeena,

It is the obligation of the employer to pay gratuity to the employee. Hence, the employer need not deduct any amount from the salary to pay gratuity.

Abbas.P.S

Payment of Gratuity Act is a vital law of social welfare governing conditions of paying gratuity. Gratuity is a voluntary payment from the employer's side to a worker who has worked five years in the company. This payment is an expense that has to be catered for by eligible companies. The employee need not contribute anything to receive gratuity subsequently, unlike PF. If you are in HR, it would be advisable to know all these legal compliances that your organization is expected to adhere to.

Hello Seniors,

I am Sougat. My query is regarding private limited companies where the working days are 22 in a month. How do we calculate gratuity in such cases?

When calculating gratuity, do we consider 26 days or 22 days? Also, should we consider the last drawn basic salary of the employee or not? Please help me with this.

Thank You.

Sougat Das

Gratuity Payment Obligation

If any employee completes 5 years of continuous service and then resigns, they are eligible to receive gratuity from their employer. It is the obligation of the employer to pay the gratuity upon completion of 5 years of service to an employee who resigns.

Gratuity Calculation Method

Regarding the calculation, although in most organizations the working days are 22 days, when calculating gratuity, only the last month's Basic salary divided by 26 days is considered as per the Gratuity Act.

Please let me know if you need any further clarification.

Warm regards,
Pranab Chakraborty
[Phone Number Removed For Privacy Reasons]

There is no provision in the Gratuity Act to 'deduct gratuity' from the salary of employees. What is usually done by companies is to show a deduction from CTC towards gratuity. Whether you deduct or not, you have to pay gratuity to employees who have five or more years of service, and you employ ten or more employed persons.

Hi Jeena,

Gratuity is not deducted from your salary. The employer has to pay the gratuity. As per the rules, you are eligible for gratuity payment. You can check with your HR regarding this as there may be some policies in your company for such payments.

Thanks

Applicability of the Payment of Gratuity Act 1972

The Payment of Gratuity Act 1972 is applicable to establishments employing 10 or more employees. Employers are obligated to give notice of opening within 15 days of the Act becoming applicable to their establishment. They are also required to pay gratuity to employees who have completed 5 years of continuous service and are leaving the company. Additionally, they must provide notice within 30 days of relieving an employee for the payment of gratuity.

At this moment, it is sufficient for you to know this information. More details can be provided upon request.

Thanks and regards,
RL Dhingra