Gratuity Dispute: How Should We Handle an Employee's Claim After 4 Years of Service?

Dear All,

I have one case in which an employee claimed a gratuity amount from the company. He registered a case against the organization by stating that the gratuity amount was a part of his CTC, which was mentioned in his offer and appointment letter. He completed 4 years of duty in our organization.

Please suggest what can be done in this case.

Completion of a mere four years does not give rise to a gratuity claim. It requires a minimum of 5 years of continuous service.

Hi, gratuity has to be paid. There is no criteria of five years of service in this particular case. If gratuity is a part of CTC, and as mentioned in the appointment letter, it is against the spirit of labor laws.

S S Rawat, Consultant.

Mr. Rawat,

I would put it this way: if amounts are deducted from pay, calling it gratuity, it merely becomes ex gratia if the tenure is less than 5 years - continuous service as laid down in the Act.

Understanding Salary Components and Gratuity

First of all, any kind of benefit provided by law is not a part of salary, such as PF, ESI, Bonus, Gratuity, etc. It is an additional cost to the company as the employer's contribution to the respective accounts. Companies are showing this separately as Cost to Company in respect of employees whose salaries are more than the Minimum Wages.

For example, if an employee's gross salary is Rs. 16,000 per month and the minimum wages as per the scheduled industry is Rs. 15,000 per month, the company will not show his company's contribution to PF, ESI, Gratuity, Bonus, etc., as CTC because his salary will fall below the Minimum Wages. Some companies are taking undue advantages only in the cases of employees drawing higher salaries. While negotiating salary, one should ask for details of "Take Home Salary" or the entire monthly salary calculation.

Gratuity Contribution and Legal Entitlement

Coming back to the payment of Gratuity contribution, which was shown as part of your salary, the company should refund the same to you as you put in 4 years of service. Because I am sure that it is not shown in your appointment letter that you should serve for a minimum period of XX years to get your deducted gratuity contribution. After putting in 5 years of service, you are entitled to Gratuity as per law, and the company is bound to pay even if you do not contribute to the same. Anyways, your company will not pay you the same easily, and hence you have to fight legally with cost.

Regards,
Suresh

CTC and Its Legal Implications

My views are different. First of all, CTC has no legal status. CTC is expressed as the yearly cost to the company to engage one employee for employment. Many organizations express it as CTC 6 lac per annum. Now, an employee who has worked for, say, 7 months and resigned will then ask for the whole year's salary as it is mentioned in CTC. Every payment is conditional. If there is no leave but the employee is still on the roll of the organization, they will be without pay, even though the appointment letter mentions monthly salary without specifying that if you have no leave, you will be without pay.

Gratuity Payment Eligibility

Gratuity payment needs to fulfill a certain period of eligibility service. If the employee meets the eligibility criteria, it must be paid; otherwise, the organization is not legally bound to pay gratuity. It may be at the discretion of the organization.

Take-Home Salary for Higher-Paid Employees

Moving on to the concept of take-home salary for higher-paid employees, it is not the right approach. Two employees may have the same CTC but different take-home pay (for higher-level taxable employees) due to different tax savings planning. It is always compared based on the cash component, retirement benefit, other facilities, and finally to understand CTC components in detail.

Thanks & Regards,
S K Bandyopadhyay (West Bengal)
USD HR Solutions

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