Gratuity in CTC: Should It Be Paid Before 5 Years of Service?

Greetings, In our company, we mention the Gratuity amount as part of the Annual CTC in both the offer and the Appointment letter. We used to mention in the offer letter that Gratuity is payable as per the Payment of Gratuity Act (with an asterisk). However, in a recent case, one of our employees is claiming that since the Gratuity amount is mentioned in the offer, it should be paid irrespective of whether the employee serves less than 5 years or completes 5 years.

Questions Regarding Gratuity Payment

Please let me know your opinion on the following questions:

1. Is Gratuity payable before completion of 5 years to the employee if the Gratuity amount is mentioned as part of the annual CTC?

Regards,
A. Anand

If one understands the purpose behind the projection of CTC in a job offer/appointment letter and the difference between the gross salary mentioned and the corresponding proportionate amount of CTC projected therein, one can find the correct answer for such a query relating to any statutory fringe benefit that would come to fruition subject only to the conditions mentioned in the respective law.

In short, CTC comprises the cost of labor actually payable to an employee as per the contract of employment and the cost of retention of labor to be incurred by the employer, both as per the contract of employment and his statutory obligations. Therefore, the mere mention of a statutory fringe benefit like gratuity in the CTC does not obligate the employer to pay when the conditions for such payment stand unfulfilled by the employee.

Dear Anand,

Gratuity is a part of the Cost To Company (CTC) for all employers. Employers make provisions in their books of account accordingly, and gratuity is paid when it is due.

An employee is eligible for gratuity upon completion of 5 years of service (if leaving the job, superannuation, or in case of death), as the situation may be.

1. Is gratuity payable before completion of 5 years to the employee? Ans: NO
2. Is the gratuity amount mentioned as part of the annual CTC? Ans: It has no meaning.

Dear Mr. Anand,

I faced a similar situation in Haryana. If Gratuity is part of CTC, it becomes payable as none of the benefits mentioned in CTC are supposed to be deducted; instead, some are payable immediately and some are payable at a later stage. As per the discussions with Labour officers and fraternity, the same becomes payable once quantified as part of CTC. I paid and I was also paid in the same fashion.

Thanks,
Raman Sachdeva

Dear Mr. Raman,

I don't think the payment was in order. Just because it was mentioned in CTC does not make it authorized unless other conditions surrounding the entitlement are also fulfilled.

Dear Raman,

I am not able to understand the logic behind your crisp answer. I shall be much obliged if you present the reasoning given by the Labor Officers and the fraternity with whom you discussed the issue. As far as I understand, no statutory benefit becomes automatically payable just because it is mentioned in the C.T.C unless the statutory conditions for the same are fulfilled. Your personal experience may be an exception, but no exception can be a rule.

You can put a note below your CTC structure mentioning that Gratuity will be payable as per the prevalent regulations/statute. This will help you in case of any queries in the future from the employees.

Warm regards, GP

Clarification on Including Bonus and Gratuity in CTC

There is no need to mention bonus and gratuity amounts as part of the CTC in the offer or appointment order. However, if it is a practice in your organization to include these in the offer or appointment order, you should specify in the footnote that gratuity will be payable as per the Gratuity Act or upon completion of five years of continuous service, which means four years and 240 days completed in the fifth year. The bonus will also be payable as per the Bonus Act. If the employee is exempted as per the Act at the time of bonus payment, the bonus shall be payable. If nothing is specifically mentioned in the footnotes regarding the payment of bonus and gratuity in the appointment order, the gratuity is payable whether the employee has completed five years of continuous service or not.

Regards,
Prithvi Singh Yadav
CEO (Newerahr Management Consultancy)
Gurugram
HR Contract no. [Phone Number Removed For Privacy-Reasons]
Email: [Email Removed For Privacy Reasons]

Query about Payment of Gratuity

I have a small query about the Payment of Gratuity. I worked with a company for the last 5 years, 6 months, and 6 days. My date of joining was 29th October 2012, and the last date of working was 5th May 2018. My Basic + DA is Rs 34,912.

Kindly calculate the amount as per the Payment of Gratuity Act Compliance. My query is regarding the payment of gratuity they are providing me, with the calculation of 5.52 years. However, based on my knowledge, they should be paying me gratuity for my tenure of 6 years. Kindly clarify whether they are compliant or non-compliant.

Dear All,

In my company, there is an employee who has not completed one year in our organization and has passed away. I just need to ask if gratuity is applicable. He worked for only 4 months with us.

Thank you.