If gratuity is a part of CTC then gratuity is payable at the time of exit or not?

I want to know if gratuity is a part of CTC, then is gratuity payable at the time of exit or not. My service period is 4 years. Please, sir, give the reply as soon as possible.

Answer in short is NO.

Gratuity is payable on completion of 5 continuous years of service. Inclusion in CTC does not mean that you will get gratuity without completing the minimum period as stipulated by law.

4 years and 240 days - they are eligible for gratuity.

Hi,

Just because some employers include the term Gratuity in the CTC does not change anything as far as the applicability of the Payment of Gratuity Act. It will and shall remain the same with 5 years being the criteria in employment continuously, subject, however, to the technical qualification of the last year if anyone resigns, retires, or superannuates in the fifth year, in which case 240 working days come into play.

Thanks and Regards

When an employer includes gratuity in CTC, he does not pay out the gratuity portion in the take-home salary. In case he includes it, then it is his problem as he is liable to pay gratuity after due service.

Col. Suresh Rathi

Statutory Gratuity is part of CTC, and the cost is allocated towards employee costs, which is payable upon completion of 4 years and 240 days. If your salary is being deducted towards gratuity, then you can claim the same irrespective of your CTC.

Gratuity is a statutory right of an employee who completes 5 years in the same organization and is a terminal benefit. The cost is to be borne by the employer and not the employee. Gratuity cannot be a part of CTC.

All costs related to employees remain part of CTC. Therefore, Statutory Gratuity is part of CTC, i.e., cost to the company at 4.81%. Gratuity, along with other terminal benefits, is also part of the total employee cost to the company. A Trust is created for Gratuity payments with LIC, and monthly premiums are paid toward this fund. The cost is then charged to the employee's account.

"A trust is created for gratuity payments with LIC, and monthly premiums are paid toward this fund. The cost is charged to the employee's account.

No part of the expenditure on account of gratuity is payable by the employee. Having a gratuity fund with LIC is the company's lookout for the timely payment of gratuity as and when employees exit and are authorized gratuity."

CTC is the projected estimate of all the expenses to be incurred by the employer per employee in a year. Just because it is mentioned in the offer letter or appointment order, it doesn't mean that all the benefits mentioned therein should be paid to the employee who leaves the organization either on his own or otherwise unless he fulfills the conditions for their payment. Particularly, gratuity being a statutory benefit, its payment is strictly subject to the provisions of the Payment of Gratuity Act, 1972 which is a complete Code in itself on the subject matter of gratuity as invariably suggested by all the learned members above.

Answer is "Yes" if he completes his gratuity eligibility period before leaving the job; otherwise, he will not be able to receive gratuity.

Read this: <a href="https://www.sabkuchonline.in/2018/02/know-all-about-gratuity-hindi-gratuity.html">What is Gratuity Eligibility and other rules?</a>

Thanks

Inclusion of Gratuity amount in CTC to an employee's salary is not correct as per my knowledge. Please note that the payment of gratuity is an additional expenditure to the employer as a part of social security benefits to employees. However, the employer has to keep a provision towards the payment of gratuity for completing continuous service rendered by an employee.

If an employee dies while working, the completion of five years will not come into the picture, and the payment has to be made to the nominee as per provision. To make a more attractive package to employees, we (HR) will create/add this amount in CTC, which is a bad practice. Someone has suggested covering this risk under LIC as the best option.

Every penny spent on an employee is accounted for in CTC. Gratuity is also a part of CTC. As Sogemar mentioned, a trust is formed for gratuity with a bank, and the gratuity share of the employee is deposited. Once the employee completes 5 years or 4 years and 240 days, whichever is earlier in case an employee resigns, gratuity will be paid on the last drawn basic @4.81% along with full and final settlement. If gratuity is a part of CTC and an employee leaves within 4 years, the company is not liable to pay gratuity.

Regards, Shweta Gehlot

There are a few spelling and grammar errors in the user's input. Here is the corrected version with proper paragraph formatting:

"Nothing is wrong in making gratuity a part of CTC to my knowledge, and there is no need to blame HR. What is CTC? It states the total expenditure for an organization on an employee, which includes all statutory and non-statutory benefits that are payable to him. Benefits like LTA will be paid on termination or resignation as part of the settlement, while benefits like gratuity are subject to statutory provisions. It is essential for both sides to understand an employee's cost to the organization."

Please let me know if you need further assistance or have any more text to review.

Yes, you are eligible for gratuity if your gratuity is a part of CTC.

Dear All,

If any component in the salary is a part of CTC, then it should be payable to employees at the time ending FY or exit of employees. There is no clause to retain this amount even if statutory conditions are not fulfilled, but mostly the company agrees to pay.

Regards,
Dhananjoy

Applicability of Gratuity as per the Payment of Gratuity Act is mandatory for every employer to pay leaving employees who have completed five years of service. Whether Gratuity is included in CTC or excluded does not matter. The earned leave balance of an employee shall be considered to complete five years of service. Employers can hold Gratuity payment in certain cases. If an employee is dismissed due to misconduct as per the law.

Gratuity is payable upon completion of 5 continuous years of service. Inclusion in CTC does not mean that you will receive gratuity without completing a minimum period as stipulated by law.

Gratuity is payable on completion of 5 continuous years of service. Inclusion in CTC does not mean that you will get gratuity without completing the minimum period as stipulated by law.

Calculation: Basic Salary * 15/26 * more than 4 years (240 Working Days). He/she will be applicable for the Gratuity.

I think employers are using CTC just to make it attractive to their prospective employees. They need not mention CTC because when they do so as an annual package without specifying any other conditions such as per Payment of Gratuity Act, etc., they bind themselves in a specific contract with such an employee who may always want to get their package as per the terms of their employment conditions, and the employer may not be in a position to wriggle out of this contract even when the employee may not have completed the requisite statutory period as enumerated in the PGA. Who knows, the Controlling Authority under the PGA may view the matter eye to eye with the applicant.

I suggest that employers should refrain from writing CTC and should clearly specify in the appointment letter to their employees the amount of salary/wages they would be paid + the statutory benefits like PF, ESI, Bonus, Gratuity, etc. Even if the employer does not mention CTC, the employee understands it and gets it in accordance with the applicable law.

Give it a thought.

Best wishes and regards

Hi,

If it is part of the CTC, yes, it's payable even though you haven't completed 4 years and 240 days.

Thanks,
SMJ

Hello everyone.

Indeed, writing the word CTC is unnecessarily giving a handle to the Controlling Authority, Appellate Authority of Higher Courts to construe its meaning against the employer. It really does not bring any benefit to him. Maybe he may have to face a hard time to give justifications at different forums for such an unnecessary word. Hence, better to avoid than feel sorry later.

Regards

If it is part of the CTC and clearly not mentioned in the appointment letter or in the terms and conditions of employment, then yes, it's payable, even though you haven't completed 4 years and 240 days.

Regards, V K SHARMA

When you look at CTC, the details of the salary breakdown become part of the employee benefits. Therefore, it is a liability for the employer to pay the employee benefits included in the CTC. No employee would want to give up their rights guaranteed at the time of hiring and the entitlement to avail complete facilities that were offered.

Dear seniors, please correct me if I am mistaken.

Regards,
Anand

All the answers related to the Gratuity Act.

Yes, Gratuity will be part of the CTC but payable only upon completion of 5 continuous years of service.

Thanks & Regards,

Sumit Kumar Saxena

Gratuity is a kind of sweet gesture from the employer's side for long-term service advantage. It can only be paid after the maturity period. The representation from the employer's side is that if you can stay for a long period here, then there would be an additional advantage of gratuity. Finally, the gratuity cost is borne by the employer only, and hence it is an expense towards the employee by the employer. If the monthly salary does not include the gratuity cost, then there is no liability to pay gratuity before the maturity period.

Hi all,

Please be clear - Gratuity is:

1. A service benefit due and payable only on completion of 5 years of continuous service with the same employer.
2. It is not payable monthly as a part of salary, whether one follows CTC or non-CTC pattern.
3. If an employee leaves the employment before completing 5 years of continuous service, he/she has to forfeit the gratuity as it is not encashable like 'unutilized leave at credit.'
Of course, in some cases like PSUs, government/quasi-government services, gratuity could be transferred by remittance/transfer of proceeds from the previous employer to the present employer when mutually agreed to such an arrangement.
4. An employer can either follow the Gratuity Act or their own Gratuity Rules modeled on the Gratuity Act (which offers more benefits than the Act). In such cases, the gratuity kitty is known to be much more than what's offered under the Act.
5. Gratuity Act does not offer any clarification on CTC type of service condition.
(I also feel (Government of India), the Gratuity Act should be amended to address concerns regarding CTC type of conditions of service.

All statutory and non-statutory variables like Basic, DA, HRA, Allowances, Bonus, EPF (24%), Gratuity, Superannuation, etc., are all part of CTC. CTC is 'cost to company,' and employees' total cost as a percentage of net profit becomes part of an annual budget exercise for professionally managed companies. CTC contains hidden costs, and these variables are used to manipulate the figures at the time of annual increment as higher management is allocated a higher percentage of increase in their salaries.

For an 8,000 Crores company, a 5% reduction in overall CTC will save Rs. 400 Crores. So this is a strategic human resource activity where CTC numbers are used for downsizing, etc.

Sogemar Ji,

But this explanation of yours does not answer the query. It seems that the term 'CTC' is relevant only for the employer for his budgeting purposes. In no way, it inspires any extra motivation in the employee's mind because he will get these statutory benefits whether the employer writes CTC or not in his appointment letter. Rather, another window of trouble may be opened for the employer in case the employee leaves service before completing the eligibility period of gratuity and chooses to claim gratuity as being part of CTC. The 'Controlling Authority' may agree to his claim as this is a more beneficial right made available to him in his Appointment Letter and the same is also in tune with section 4(5) of the Payment of Gratuity Act, 1972.

Best wishes and regards

CTC is used as one of the components for HR budgeting. It is also a motivational tactic to show big figures of CTC where the candidates get carried away and join and later comprises or leave the Org.

Yes, you are right, there are labor court cases claiming gratuity deductions as non-statutory deductions as part of CTC and therefore liable for payment of gratuity. International companies pay gratuity annually in Mumbai. However, statutory gratuity is payable after an employee completes 4 years and 240 days of continuous service.

Dear friends,

It's high time everyone should be clear on some of the facts already discussed here by learned members. To summarize:

1. Indian laws don't offer any interpretations about CTC.
2. Practicing, imposing, or accepting and interpreting CTC is the prerogative of employers and employees at one's own cost and risk.
3. Even courts have not spelled out any codifications on CTC.
4. Though generally gratuity is considered as part of CTC, there is no hard and fast rule on whether to include or exclude it.
5. Even the Gratuity Act also doesn't mention anything about CTC.
6. Regardless of whether or not included in CTC, gratuity is payable when an employee leaves an employer only after completing a qualifying "continuous service" of 5 years (4 years + 240 days in the 5th year) with the same employer (except when forfeited on lawful grounds).
7. Even when included in CTC, gratuity is not payable monthly as it is not part of the gross salary or take-home salary.
8. There is no legal obligation for an employer to open a bank account and invest the gratuity fund on a monthly basis. However, it's the legal responsibility of an employer to create adequate provisions/liability towards gratuity in their Annual Accounts, which is compulsory to defray gratuity obligations.
9. In cases of non-payment of gratuity to a legally eligible employee, the employee can seek intervention of appropriate officers and legal remedies. In such cases, the employer is liable to pay overdue interest on the delay in payment of gratuity at prescribed rates. Therefore, there cannot be a loss even when payment is delayed.
10. Above all, gratuity is not contributory like EPF from employees' side as employers have to contribute 100%, including overdue interest.

Individual queries, if any, on certain complications can be addressed.

Dear All,

Gratuity is part of CTC, and if you exit before completing 5 years, then as per compliance, it will be paid out as "Ex-gratia."

Regards,
Dhananjoy Kumar

If CTC break up simply says Gratuity, then, in my opinion, the employee has a right to get Gratuity as mentioned in the Offer letter. In addition, if he or she completes the minimum stipulated period under the Payment of Gratuity Act, then he or she is eligible to receive Gratuity under the Act as well.

Alternatively, if the CTC description clearly says Gratuity under Payment of Gratuity Act, then the employee is eligible only under the Payment of Gratuity Act after completing the stipulated service. However, this has not been tested in any court as of now. If CTC description simply says Gratuity, then the employee can only move to Civil Court and cannot file a petition under the Payment of Gratuity Act.

There are many judgments on wages and salaries but to my knowledge, there is no judgment on the term CTC as it has no place in Labour Law as of date. One needs to move to a civil court to get the correct verdict on this subject. However, I always advise my clients to use the terminology Gratuity under Payment of Gratuity Act when giving the break-up of CTC.

T. Sivasankaran

Answer is not clear yes or no.
In CTC concept, generally there is notional debit of certain amount from CTC. Because the amount agreed as remuneration is not being paid but kept aside to be paid towards gratuity. While in other cases, in older pay structure philosophy which is also known as GPA or Gross per Annum, where the gratuity is Benefit and was being paid over and above the agreed remuneration.
Gratuity is loyalty bonus, and if the amount towards loyalty bonus is from employee’s committed CTC, ethically companies are bound to pay irrespective of the eligibility tenure, yeah it may not be termed as Gratuity but can be said as Ex gratia. On ex gratia there will not be any Income Tax relief.
So it depends on the company’s policy, progressive and ethical companies if makes debits/provision towards Gratuity from employees' CTC, they do pay as ex gratia prior to 5 years’ tenure and as Gratuity upon completion of 5 years.
Shailesh Parikh
9998971065

Friends,

Could you post/share info of any instances of gratuity when followed under CTC pattern was paid in cash/cheque/cr. to a/c or in any manner by in any co/firm? Obviously, employers will have to pay gratuity to those employees when they leave their firm if the employees have completed 5 years of continuous service as per the Gratuity Act, and there is no confusion.

Whereas, what we are deliberating is in case employees leave firms before completing 5 years of qualifying service for gratuity, and if so, how they are paid the component towards gratuity forming part of the CTC pattern. We have been believing in such instances; these firms do not pay anything as gratuity, and thus concerned employees are deprived of their share of CTC.

Hypothetically, assume Mr. X, throughout his career, say till his superannuation age of 60, went on changing his employers. In every such changeover, before completing 5 years, and therefore Mr. X never tasted any gratuity in his lifetime just because i) he didn't complete 5 years with any of his employers and ii) all his employers followed only CTC. Does this fit into logic? What's the solution?

Dear All,

Appreciate inputs from various learned members on gratuity. However, the following may please be clarified:

1. Where is it mentioned that an employee with 4 years and 240 days of service will be entitled to gratuity? This is debatable. Is it through a high court decision (Chennai, if I remember correctly)? If so, is a decision of the high court applicable only to the particular state or is it applicable to all over India?

2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years, else it will be for 5 years.

3. If the term "240 days" is used, does it include weekly offs, holidays, and leaves, or is it based on working days or calendar days? There is no clarity on this issue.

Can somebody please shed light on the above?

Thanks.

1. Where is it mentioned that an employee with 4 years and 240 days of service will be entitled to gratuity? This is debatable. Is it through a high court decision (Chennai, if I remember correctly)? If so, is a decision of the high court applicable only to the particular state or is it applicable to all over India? - Applicable only for the respective state, i.e., Tamil Nadu

2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years; otherwise, it will be for 5 years. - Correct

3. If the term "240 days" is used, does it include weekly offs, holidays, leaves, or is it based on working days or calendar days? There is no clarity on this. - All days including Paid Holiday, Weekly Off, All Authorized leave are covered to calculate 240 days / 5 years of service

Dear friends,
This part of interpretation is being discussed in this forum almost for a decade now. Seekers, please take atleast a few minutes to refresh past postings on the matter being discussed. This will avoid oft-repeated matters raised all over again. Pl.be informed
e judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10months 11days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."
The gratuity act says continued services. The continuity in service is clarified by SC a year means 240 working days in a different context but nothing is stopping you to adopt the sum & substance of the concept while applying. Hence , an employee who has completed 4 years 8 months and 18 days continuously without any break is eligible for Gratuity under the Act.
For further reading use this link-
https://www.citehr.com/108564-sc-jud...-download.html

Dear Mr. Kumar,

Thank you for your insight. Has the gratuity act been amended to the above effect? Has there been a gazette notification? I would appreciate if you have any information on this.

I think the answer is no. The interpretation of this is now left to individual employers. Barring a few companies, most companies would avoid extra outflow if the service is below 5 years.

In some cases, gratuity is shown under CTC as part of the employee's compensation. However, certain companies might pay, and a few others might not pay.

Thanks and warm regards.

I mean paying for a service for less than 5 years, even though it is included in the Cost to Company (CTC).

I am not sure about any amendment to the GA to give effect to the 240-day concept. However, the attached SC judgment may shed some light on this issue. I hope this will be especially helpful for those who need some supporting documentation to consider 240 days per year of service.

Dear friends,

Re: Gratuity in respect of employees under CTC - for those who either leave before 5 yrs of qualifying service or otherwise.

It's high time that citeHR forum & members should mobilize public & political support for reining in some legislation addressed to 1) codifying CTC pattern type emoluments and 2) rationalization of terminal benefits for those switching jobs before completing qualifying service covered under CTC. Currently, the frequency of job switches, especially in the IT/ITES and Bio-Tech sectors, is very high. Therefore, it's a timely need.

This issue has a major impact on gratuity contributions compared to other benefits such as accumulated leave left behind unavailed, health insurance, and unutilized LTC related to past service, among others. It is suggested that some sort of transfer arrangement like EPF should be in place to address the loss in this regard.

This is specific to the query on whether the Madras High Court judgment is valid for other states.

1. SC verdict covers all states.
2. HC judgments will cover the specific state.
3. However, if there are no other judgments by any other State High Court, the judgment may be construed as binding on lower courts. But if any appeal is pending, then this may not be binding in other states.

Sivasankaran

I don't see any reason for denying gratuity despite the Supreme Court judgment supporting specifically the 240 days analogy. If they are not willing to adopt the Madras High Court judgment, how are they justified in ignoring the Supreme Court judgment, which is binding on every employer all over India? Claimants should take it up aggressively to secure their right to gratuity.

Gratuity is part of CTC but payable only after the completion of 5 years of service, and eligibility should be 4 years 240 days. Simple answer.

Thanks & Regards,

Sumit Kumar Saxena

Dear All,

Thank you for your inputs. I wish you a happy and prosperous festival of lights, Diwali.

Dear friends,

TV reports indicate that the GoI is seriously considering amending the Payment of Gratuity Act to enable entitlement to gratuity for those who have completed 3 years itself instead of the present 5 years of continuous service. If this becomes a reality, lakhs of employees will receive the benefit, perhaps at the cost of employers who shouldn't mind (keep guessing what it's going to be like - prospective or retrospective, keep fingers crossed). Reports suggest that the GoI solicited opinions of stakeholders (here, not the employees but from employers). Perhaps the election year will boast of this new beginning, a windfall indeed, let us hope. All the best to all frequenters.

Dear Elders,

I have worked in an organization for 4 years and 9 months, but the gratuity has not been paid to me. In the standing orders of the company, one point is mentioned that "the gratuity will be paid to the person who completes 5 years of service." Upon showing this, our HR has refused to pay the gratuity. Now, tell me, am I really eligible for gratuity? If eligible, how can I obtain the gratuity amount from the company?

Please convey your suggestions.

Best Regards,
D. Nagaraju

Note: I don't have even a single LOP during my service period.

Best Regards,

D. Nagaraju

Dear Nagaraju,

First, ensure that your firm and you are covered under the Payment of Gratuity Act. Have you quit this firm or not? If yes, please file an application in FORM "I" - Application of gratuity by an employee to your HR and obtain acknowledgment. Also, send a copy to the Controlling Authority, Officer under the Payment of Gratuity Act. Below are the other Forms involved in gratuity administration:

- FORM I - Application of gratuity by an employee (specimen form is attached)
- FORM J - Application of gratuity by a nominee
- FORM K - Application of gratuity by a legal heir
- FORM L - Notice for payment of gratuity
- FORM M - Notice rejecting claim for payment of gratuity
- FORM N - Application for direction
- FORM O - Notice for appearance before the controlling authority.

I hope that if you follow up vigorously, there is a possibility of gain.

Dear Friends,

Gratuity can't be part of CTC. There are two reasons:

1. It is a liability incurred only by the employer.
2. As per the Income Tax Act, organizations can show their costs if the organization is going to pay in that particular financial year.

However, it's a cost to the company that is applicable only after 5 years or 4 years and 240 days of continuous service by an employee. If an organization has mentioned the gratuity amount in the Appointment Letter, you can claim that. For reference, kindly read the Income Tax Act and Gratuity Act.

Dear all,

My views (MV) on the above post of a member from Hyderabad, for clarity purposes:

"Dear Friends, Gratuity can't be part of CTC. There are two reasons. 1. It is a liability which is incurred only by the Employer."

= (MV) Of course, gratuity is a liability and is to be incurred only by the employee. This means there should be no 'recovery' or 'contribution' from employees like EPF. One shouldn't get confused when CTC is involved, where the gratuity amount is also shown under 'employees' cost to Co.

"2. As per the Income Tax Act, the Organization can show their cost if the organization is going to pay in that particular financial year."

= (MV) Please be clear, gratuity 'is paid' to the employees only when leaving an employer subject to eligibility under the Payment of Gratuity Act. Whereas accounting for gratuity is something different. As everyone knows, 'gratuity' becomes payable (becoming a "liability to pay") only after completion of 5 years (4 years + 240 days) of continuous service with the same employer. One might have doubts about what happens next. If the employee continues with the same employer, the employer has to 'compute & earmark' that much 'gratuity' money and show it in their Accounts as a 'Provision' for future payment every year until he leaves either upon (i) resignation, (ii) retirement, (iii) death, or (iv) being relieved on medical/health grounds. When this "Provision" is made EVERY YEAR, it is a part of 'Business Expenses' towards 'Employees' Benefits. This provisioned money is administered either in (i) a Gratuity fund created by the employer for meeting 'gratuity liability', in which case this fund money remains with the employer, or (ii) remitted to the gratuity fund managers like LIC.

Here, what is important for every employee to note is that when a CTC is finalized as a package, as in the appointment order, it does not mean the employee doesn't receive that much money either in the monthly salary (take-home) from day one or at the year-end. This entitled, packaged money becomes payable only when he/she quits, and that too after 5 years (4 + 240 days) of service without a break. This amount of money is entirely lost if there is a break-in-service or if one quits before 5 years. Therefore, one who accepts CTC should be well aware of this fact and shouldn't be carried away when the CTC package looks substantial by including 'Gratuity' as a part of CTC.

xxxxx

Please note that the above sentence should be corrected as follows: (Error is regretted.)

Of course, gratuity is a liability and is to be incurred only by the employer.

Many organizations, during salary fitment, will include the gratuity amount as part of your CTC. However, when issuing the appointment letter, they will mention that you will be entitled to gratuity as per the Payment of Gratuity Act.

Gratuity is a part of CTC but is payable only after completing 5 years of service, with eligibility set at 4 years and 240 days.

Dear Thakursumitmba,

Gratuity has to be paid to an employee if they complete 5 years of service with an organization. It is not relevant if the gratuity is included in the CTC or not.

Click on the "+" sign for more helpful answers like these.

Regards,
Sairam Bandi
Email: sai@kredily.com

For gratuity, the minimum years of service required is 5 years. If an individual completes 4 years and 240 days of service, it will be considered as 5 years.

Hello,

CTC means Cost to Company. This cost can be monthly, yearly, or once every five years. The concept of CTC is not recognized by law, but Gross pay and net pay are what is recognized by law.

As per the accounting principle, every possible cost or expense, whether immediate or in the future, has to be recorded and accounted for by way of provision.

According to the Gratuity Act, the company has to take into account the gratuity from the day one of any employee joining the organization. Hence, a provision in the books of account of the company has to be made accordingly, as gratuity might become a cost payable in the future to an employee if the employee chooses to stay back or dies during employment, etc.

Therefore, when the company makes such a provision for gratuity for each employee in its books of account, it ends up as a cost to the company for each employee it hires. Hence, they add gratuity to CTC.

I hope this clears the doubt.

Regards,
Octavious

I appreciate the rationale behind adding gratuity to CTC by Octavius. Furthermore, gratuity is to be covered through insurance, which will be counted from day one.

Thanks for the detailed explanation.

Hi,

If the employer has not mentioned in the appointment letter that you will be entitled to gratuity under the Gratuity Act, what should the employee do to claim gratuity after 5 years of service?

Kindly suggest.

Dear Barenhr,

Gratuity is a statutory right of an employee. They can claim it through Labour Authorities (Controlling Officer under the Payment of Gratuity Act, 1972).

Thank you.

Hi Barenhr,

Whether the gratuity is mentioned in the appointment letter or not, it's payable "ONLY" -

i) when an employee leaves the employer;
ii) and that too eligible if the employee completed 5 years of 'continuous service' when he/she leaves or dies before completion of 5 years;
iii) and he/she is covered under the Payment of Gratuity Act;
iv) it does not matter if it's mentioned in CTC or not.

If the employee fits into the above conditions, he/she can file a claim for gratuity in the prescribed form with the designated officers. Please refer to the Act for further guidance.

It does not matter whether gratuity payment is mentioned in the appointment order or not. Once an employee is eligible for gratuity as per the Act, it will be paid. Normally, organizations pay such amount along with full and final settlement if the employee is eligible. If the employer did not pay, even though the employee is eligible, then only going to the labor department arises.

If the appointment letter provides gratuity in the CTC, an employee can claim gratuity even though he has not completed the stipulated 4 years and 240 days (5 years of completed service).

Gratuity is a statutory amount that an employer is required to contribute when this amount is included in the CTC and shown as an employee's total compensation for the appointed position. The amount shown under gratuity takes the same effect as that of his regular salary components such as basic, HRA, and other allowances. No part of any compensation payable for service rendered should be subjected to a condition for availing it.

Interpretation of legislation Payment of Gratuity 1972 Sec.4(5) states, "nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer." The section must be interpreted with liberal interpretation - applying the principles of interpretation of statutes, the phrase "better terms of gratuity" favors the claimant (employee). The employee has every right to claim his earnings; no employer can withhold any earnings due to him or subject any earnings to any condition, provided that gratuity is shown as a component within the total compensation (CTC).

Dear all,

As discussed earlier, a peculiar situation arises where employees are covered under CTC mode of emoluments. As everyone knows, the migration of employees from one unit to another in IT/ITES is taking place so frequently compared to any other sector. In the process, when the migration takes place in quick succession, i.e., <5 years of completed/continuous service, these employees forfeit their right to claim gratuity payment. It's no wonder if a person, during his/her entire possible service period of a lifetime, say between 18 years and 60 years of age, i.e., 42 years, broken into about 8 or 9 separations, never becomes entitled to/receives gratuity at all despite this being a statutory payment. Worse is when under CTC mode. Lawmakers and activists should find a solution to this anomaly so that these unfortunate persons are remedied suitably/reasonably.

Hi, I have a different perception, Mr. Kumar.

In the first place, the CTC method of salary administration is neither universal nor statutory. It is merely a projection of the total cost incurred per employee per year by the employer to assess the overall cost of employment. This evaluation is instrumental in determining the compensation package, either unilaterally by the employer or through negotiation with the individual employee or unions.

Secondly, the components of CTC or the conditions for their payment should not be structured to deprive the employee of their regular monthly earnings by incorporating statutory indirect benefits such as bonuses and terminal benefits like gratuity.

Thirdly, including future terminal costs like gratuity in the CTC, which is essentially a current cost of employment, may lead to misconceptions. This could potentially result in interpreting CTC as an integral part of the employment contract to stake a claim for gratuity under the guise of improved gratuity terms under Section 14 of the Payment of Gratuity Act, 1972. In that case, why not consider incorporating retrenchment compensation and compensation under the Employees' Compensation Act, 1923, for suitable job positions within the CTC?

Finally, job-hopping is not a modern phenomenon but has always existed, depending on the job-hopper's preferences. Each job-hopper is aware of the advantages and disadvantages of each job change. Therefore, any attempts to reduce or eliminate the minimum qualifying service for gratuity could potentially undermine the very essence of the gratuity concept.

The solution has already been suggested in my posts in this thread itself. Please go through.

As per my understanding, there is no harm in deducting the gratuity amount from CTC with the following conditions:

1. In case an employee leaves the company before completing 5 years as per the Gratuity Act, then the employee is entitled to receive the amount which was deducted from CTC.

2. If an employee leaves the company after 5 years, then as per the statute, they will receive their payment.

I don't feel any violation of the law.

Regards

Dear friends,
As all of us are aware the terminal benefits include the following (other than EPF) -
1.Gratuity (in full, accrued & due)
2.Statutory bonus (if applicable, entitled to either while in service or after leaving)
3.Leave encashment (if eligible as per HR policy)
4.Retrenchment benefit (subject to service conditions and/or legally eligible)
5.Other benefits, if any
We see many of these now being quoted as part of CTC. And employees take decisions of a switch over considering the size of their CTC. To my knowledge the quantum of Gratuity more or less remain the same whether it’s nonCTC or CTC employment. It’s also true many employer even offer higher gratuity purse even beyond the statutory limits which are welcomed by employees.
Other than gratuity, many of these benefits are governed by different rules/regulations and not commonly applied.
My point here is employers’ contribution towards EPF is remitted either to the EPF Trust or to the EPFO and once remitted employees are within their right to eiter transfer or encash. And ‘gratuity’ also more or less similar payout to employers, except when comes to disbursement employees concerned who didn’t complete the qualifying service are denied. Ofcourse it’s not a violation of law.
And many courts have upheld the concept of ‘gratuity’ is not an ‘alms’ but a “reward” for the service rendered, a right of employees.
No issue every penny traced to employee is/may be part of CTC.
But the fact remains as this specific contribution for the benefit was made by the employer, like EPF, attributable to the concerned employee accounted as such and updated every year, which had a major impact in decision making of choosing the job ultimately results in a duck is a big loss/disappointment. And indeed is very harsh, if continues for the full length of one’s service, is a huge one more or less amounting in the order of 10,15,20 lakhs. And nobody can be vary of the fact that ‘gratuity’, apart from EPF, is the major source of a kitty which will be the livelihood for a retiring person to fend for him/herself for the rest of their life time. This is so especially when they have no effective pension scheme covered. That’s my point.

If an employer is not willing to pay gratuity to an employee after completing 5 years of service, even though the gratuity component is mentioned in the monthly salary, certain actions can be taken. It is essential for the employee to first try to resolve the issue internally by discussing it with the employer or the HR department. If this approach does not yield results, the employee may consider seeking assistance from labor authorities or legal counsel to pursue the gratuity entitlement through appropriate channels.

It is crucial to ensure that all communication and documentation related to the gratuity matter are well-documented and retained for reference in case further action is required. Employees have rights regarding gratuity payments, and taking steps to assert those rights through the proper channels is important to ensure fair treatment and adherence to employment laws.

If a company gives Form V to a contractor who has a labor license, and that contractor then subcontracts to another contractor who does not have a labor license, is it statutorily allowable or not? Please clarify this issue with the relevant clause of the act.

There are three aspects being discussed here: CTC, offer letter, and appointment letter. CTC is an estimate of employee expenses, and most companies do not share the actual CTC figures. The offer letter or appointment letter is a contract of employment governed by the provisions of the Indian Contract Act. The company includes gratuity as part of CTC to show the candidate that they care for their social well-being. However, when an employee completes 4 years and 239 days and their services are terminated, they are not entitled to receive payment of gratuity. The trick here is to show that the company pays gratuity, but conveniently omit it in the terminal settlement.

Nevertheless, if gratuity is mentioned in the appointment letter, which companies usually avoid doing, it becomes payable simply because the appointment letter is a contract of employment. Whatever amounts are mentioned in the appointment letter are payable to the employee, including gratuity, at the time of termination of service.

Here, the contractor shall be considered as the principal contractor/employer and therefore liable to comply with the provisions of the Act.

For the benefit and information of all members, I am attaching a Madras High Court judgment (very old) which clearly explains the eligibility for payment of gratuity. Although numerous amendments have occurred in the Payment of Wages Act and Payment of Gratuity Act, the essence of the matter still holds true in today's scenario as well.

Thanks

Dear friends,

I think those who accepted employment looking at CTC carry a high degree of wrong notion as to the size of their package. Every such person should focus their attention on the Gross salary, take-home pay, etc., rather than the total CTC. The Gross salary is the very same emoluments on which every such person is going to live on. The rest of the items, whether listed or not listed, revealed or not revealed, will have its impact only on separation from the present employer. In saying so, it doesn't mean one shouldn't bother about it though.

The gratuity is one such earning among others like accumulated contributions to EPF, interest accrued thereon, EPS, leave encashment, etc., which matters when the F&F settlement is being made out. The gratuity amount is an earning lawfully entitled to every employee who completed 5 yrs of 'Continuous service'. Denying this legitimate employee benefit is an offense. I request all those who decide to switch over to another employer shall take a conscious decision keeping in view the quantum of gratuity which might be lost forever if they fall short of this stipulation of 5 yrs. CS.

Let us look at it like this - if a PG youth enters his/her first job at the age of 21/22 and can serve up to 60 yrs. In this active working lifespan, say 37/38 yrs. Hypothetically let's assume he/she switches on to say 5 or 6 jobs serving in each tenure <5 yrs continuous service. Thus there is every possibility that he/she never sees an employee benefit known as 'gratuity', an amount maximum of Rs. 20 lakhs as per the Act.

The Madras High Court's judgment to the effect that 4 yrs 240 days of CS, though everybody is aware of it, for reasons unknown didn't find a place in any amendment to the Act. And therefore not widely implemented by unwilling employers as it remains a judgment of the Madras HC. I'm not sure whether any confirmatory plea is pending in the SC so that this amendment can be applied all over the country as and when the SC rules in favor.

Please apply your minds to these things. For ready reference, a gist of the Gratuity Act (amendments to be updated) is attached.

Dear,

Gratuity means "a gift or present, often in return for favors or services." Gratuity is a statutory right of an employee who completes 5 years in the same organization. The cost is to be borne by the employer, not by the employee.

Gratuity cannot be a part of CTC. If a company includes it as part of CTC, you shall be eligible to receive the amount even if you have not completed 5 years.

It is not appropriate to mention Gratuity as a part of CTC. If mentioned, then need to pay even if employee leaves on or before the completion years defined under Gratuity Act. It is therefore advisable to mentioned “Gratuity as per the Payment of Gratuity Act “in the appointment letter.
I had seen in many Telecom Sectors wherein Gratuity is a part of CTC and the same settled by employer as ex-gratia @ 4.81% of basic per month in their full and final settlement even if employee left the organization on or before completion of service-defined period under the said act.
For Example
Basic Salary 10000/- p.m
Gratuity is 15 days basic of every completed years of service
then amount should be divided by 26 to calculate per day salary 10000 /26= 384.6 gratuity is calculated on 26 days multiplied by 15 days means 384.6 * 15 days = 5769/- would be further divide by 12 (because 12 months in a year) means 5769 / 12 = 480.75 this is equal to 4.81 % of 10000 /- pm

It is not appropriate to mention Gratuity as a part of CTC. If mentioned, then need to pay even if employee leaves on or before the completion years defined under Gratuity Act. It is therefore advisable to mentioned “Gratuity as per the Payment of Gratuity Act “in the appointment letter.
I had seen in many Telecom Sectors wherein Gratuity is a part of CTC and the same settled by employer as ex-gratia @ 4.81% of basic per month in their full and final settlement even if employee left the organization on or before completion of service-defined period under the said act.
For Example
Basic Salary 10000/- p.m
Gratuity is 15 days basic of every completed years of service
then amount should be divided by 26 to calculate per day salary 10000 /26= 384.6 gratuity is calculated on 26 days multiplied by 15 days means 384.6 * 15 days = 5769/- would be further divide by 12 (because 12 months in a year) means 5769 / 12 = 480.75 this is equal to 4.81 % of 10000 /- pm

It is not appropriate to mention Gratuity as a part of CTC. If mentioned, then need to pay even if employee leaves on or before the completion years defined under Gratuity Act. It is therefore advisable to mentioned “Gratuity as per the Payment of Gratuity Act “in the appointment letter.
I had seen in many Telecom Sectors wherein Gratuity is a part of CTC and the same settled by employer as ex-gratia @ 4.81% of basic per month in their full and final settlement even if employee left the organization on or before completion of service-defined period under the said act.
For Example
Basic Salary 10000/- p.m
Gratuity is 15 days basic of every completed years of service
then amount should be divided by 26 to calculate per day salary 10000 /26= 384.6 gratuity is calculated on 26 days multiplied by 15 days means 384.6 * 15 days = 5769/- would be further divide by 12 (because 12 months in a year) means 5769 / 12 = 480.75 this is equal to 4.81 % of 10000 /- pm