Merits and demerits of paying gratuity as a monthly component in salary?

Dear Poonam,
I think Mr.Rao has brought out the position clearly with the extract of the relevant section of the Act. When the termination of employment leading to payment of gratuity is death of the employee or otherwise, the formula is the same - i.e, the amount of gratuity depends on the length of service prior to the date of termination. Therefore, it follows that in scenario-1, the nominee would get gratuity for 4 years by rounding off principle and in the latter for 6 years if the period beyond the 6th year falls short of 6 months.

Mr.Umakanthan explained well as to why gratuity cannot be paid as a component of salary every month, it being a retiral benefit to offer economic security when a person is not employed to enable him to earn some money every month or regular intervals by gainfully investing the lump sum amount.
Secondly, if an amount is paid as a component of salary even ostensibly as gratuity, it is likely to acquire the character of part of wages by the definition of wages in various Acts and may run the risk of being counted for PF & ESI and even for gratuity payment.
B.Saikumar
HR & Labour Relations Adviser
Navi Mumbai

As very well explained by Mr. Umankanthan and Mr. Nathrao, it's incorrect to pay Gratuity in advance or in instalments along with monthly salary. More over the Gratuity amount due will be as per Basic pay as on last working day of the employee, as such it may not be feasible for any one to preempt the due amount.
However, for reasons best known- as per respective company policy, if an employees seeks and paid-with any advance, with an agreed term (duly documented) that the unrefunded part of the advance may be settled against his future Gratuity dues, then only it can be legally correct to recover such outstanding dues /advance(s) from future Gratuity dues. Written employee consent is a must, since it is a recovery from a statutory dues (Gratuity can't be otherwise adjusted or attached with any other dues/ advances, unless otherwise authorised by a court for special reasons as considered).

Dear Mr Moorthy,
I beg to disagree with your comment.Gratuity is to be paid only on exit after meeting with requirements as Specified in Payment of Gratuity Act.
It cannot be paid in monthly instalments regardless of any individual agreement with the company.
Law is very clear and we should not try to find out loopholes and circumvent the law.
Including a monthly amount in CTC is ok but cannot be paid until 5 years or over or death.

@Mr. Nathrao. Thanks, what I stated was also exactly same. Due date for gratuity is clearly stipulated and no doubt should arise in any ones mind. Neither It can be part of salary nor payable in advance. Part-2 of my statement above, is regarding process for recovery of outstanding advances if any, to be adjusted against future Gratuity dues (as & when its due), with clear consent of employee given in writing. Not to be mixed up with due date for payment of Gratuity.

@Poonam. Regarding payable amount of Gratuity dues in case of death of an employee. Actual service counts. Also please check from which state the employee served.
Some of the states (e.g. AP/TS/Maharashtra) have issued GO for compulsory insurance, towards payment of Gratuity. The policies issued by LIC and few other service providers include a provision of future service gratuity. As such the Gratuity payable amount would be calculated not only for past service rendered but also for the future service upto 58 years which is paid by the respective insurance provider through the employer managed Gratuity Trust.

Dear Msmoorthy ji & others,
I would like to draw your kind attention that so far in Maharashtra an amendment of 1987 Section 4A on compulsory insurance / setting of gratuity fund, is not brought into force . It is not brought into force in other States also to my knowledge. However, I remember reading some where the notification by AP Govt. of implementing this provision.
Nevertheless, Gratuity Insurance Policy is available from LIC of India and other insurance companies. By paying extra premium in Group Gratuity Policy towards life coverage, one can cover the life of employees. In this case, gratuity is paid in death cases considering gratuity years up to the age of retirement and salary at age of retirement on the basis of increase in inflation.

Dear Koragoankar ji
Please see the attached AP Govt notification for compulsory gratuity insurance. Same applicable for TS also. As regards Maharashtra please see section 4A in the attachment provided, which stipulates compulsory Gratuity insurance.

Dear Mr.Moorthy ji
I also concur with Mr.Keshav Korgaonkar that the State of Maharashtra has not notified gratuity insurance rules in terms of sec.4A on the lines of AP & Telangana .The Section 4A will not be in force in a State unless the State Govt. concerned notified it to be in force as is evident from the commencing lines of the sec.4A which state "with effect from such date as may be notified by the appropriate government in this behalf......".
B.Saikumar
HR & Labour Relations Adviser
Navi Mumbai

The Gratuity Act rules of Maharashtra state come into force only once they are passed by the State Cabinet, which are an elaboration of the the Gratuity Act for purpose of implementation across Maharashtra state.
Still if any doubt, the same should be referred to the Concerned Government authority who will be the competent person to clarify.