Can Employers Deduct Gratuity from Monthly Salary and What If You Leave Early?

Hi all,

Can an employer deduct gratuity from an employee's monthly salary? If yes, what happens if that employee leaves the company before completing five years?

I understand that gratuity is a part of the CTC, but what if the company has not mentioned any gratuity amount in the CTC breakup and still deducts gratuity?

Yes, an employer can deduct X amount towards Gratuity, as mentioned in the CTC breakup. In this case, if an employee leaves the organization within 5 years, the payment of Gratuity lies in the sole discretion of the employer. It is not mandatory that the employer has to pay the amount deducted towards Gratuity from the employee since his joining month.

However, if the employer deducts X amount towards Gratuity, which is not mentioned in the CTC breakup, then the employer has to pay the amount deducted if the employee leaves the organization before completion of 5 years, technically 4.8 years.

Understanding CTC and Gratuity

CTC is the amount that the company invests for the employee's benefits. Gratuity is one of them. Also, the Mediclaim policy is a part of the CTC, but the coverage ends the moment the employee has been relieved from the organization. Likewise, the Gratuity is payable only when the person completes five complete working years. So even if it is a part of the CTC, it does not mean it needs to be paid prorata. The Gratuity is governed by the Gratuity Act, and therefore payment before that is not possible.

Kindly note that these are employer costs and not employee costs, so they are governed by the specified acts for the same.

Regards,
Ashutosh Thakre