Can an Employee Opt Out of Gratuity if It's Included in Their CTC? Seeking Advice!

We have one employee who will be joining shortly. He wants to opt out of the gratuity as it is part of the CTC. Is it possible?

Need your suggestion.

Employee has not understood the concept of CTC. Payment of gratuity is a legal compulsion. Why does the employee want to opt out of a benefit to himself?

Gratuity is a good practice and also law-controlled. A company can include gratuity as part of the CTC and pay it on a monthly basis. However, one thing to note is that gratuity is not a part of the salary or monthly wage.

Hi All,

Can we show gratuity in CTC basis? If yes, how will you show the amount in CTC? Where we cannot show it in the paysheet or deduct it from monthly wages.

Thanks and Regards,
Kashinath

Understanding Gratuity Requests in Salary Packages

An employee who does not require gratuity but wants it included in the monthly package is likely planning not to stay with the organization for five years. Do not underestimate such employees. They are often very clever and may bargain to have gratuity included in their monthly allowances instead. This indicates they are certain they will not remain with the company long-term. If they do complete the eligible period of five years, they know they will still receive gratuity without considering that it has already been taken on a monthly basis.

My advice to HR professionals is not to revise the salary for such requests and to be cautious about hiring individuals who want gratuity included in their salary.

In case of death while in service, the employer is liable to pay gratuity. Consequently, it is advisable not to give an option to opt out, though there is no such provision in the Act.

Understanding Gratuity Under the Payment of Gratuity Act, 1972

The "gratuity" contemplated under the Payment of Gratuity Act, 1972, is strictly a terminal benefit in addition to other terminal benefits, whether statutory or otherwise. Based on the concept of CTC, which lacks specific statutory recognition in wage and salary administration, some employers project gratuity, a future benefit, as a periodical outflow of employees' cost. This misrepresentation is often used to gain an edge in salary negotiations.

Employees often fail to understand that the payment of gratuity is contingent upon certain conditions and requires no periodical financial contribution from them. Contracting out is impliedly prohibited under section 14 of the Payment of Gratuity Act, 1972.

In most companies, Gratuity (4.81% of CTC) is shown as a cost to the company to calculate gross. It's a notional entry and debit, as it's a future provision to pay the gratuity which is mandatory.

However, many companies don't pay employees when they leave before completing 5 years, which is unethical.

Many companies don't pay employees when they leave before completing 5 years, which is unethical.

Sir,

How is it unethical? The Payment of Gratuity Act stipulates a minimum of 5 years of continuous service for eligibility for gratuity to arise. If you leave before completing 5 years of service, the question of gratuity does not arise.

Gratuity is paid as statutory under the Gross per Annum concept, where the amount is over and above your committed pay.

In the CTC concept, part of the employees' committed CTC is kept aside from the very first month as a provision to pay them when it becomes applicable. When negotiating with the employees, it is projected as their earning, which would be true only for employees staying with the company for more than 4.6 years.

Hope this clarifies.

Regards,
Shailesh Parikh
9998971065

When an employee completes 4.6 years, he would not be entitled to gratuity. He could not have completed 190 days in a company that has a 5-day working week. The rule stipulates 5 years of continuous service and a minimum of 240/190 days in the last year of work.

Understanding CTC and Salary Packages

It is unfortunate that today's HR fraternity, in large numbers, do not understand or try to understand what CTC is. I have mentioned this before as well. There is a difference between a salary package and a CTC package. One must understand this distinction first. If HR professionals do not grasp this concept, how can the employees interviewed and hired by them understand and be convinced?

Regarding CTC and Gratuity

This forum has discussed this topic many times. One of the threads is provided below for the benefit of the inquirers and other members: https://www.citehr.com/455251-gratui...etion-5-a.html

I apologize for being a little harsh in my language.