How Should We Calculate Gratuity After the Supreme Court's PF and ESIC Ruling?

Dear HR Fraternity,

Supreme Court Judgment on PF and ESIC Act Amendment

In view of the Supreme Court Judgment on PF and the Amendment to the ESIC Act, we have modified the salary structures of the employees, which are as follows:

1) Basic

2) HRA

3) Children Education

4) Washing Allowance

PF Calculation and Other Statutory Calculations

Earlier, we calculated PF contributions only on Basic. As per the SC direction, we are now required to treat other salary components except HRA. Hence, the PF Gross = Basic + Children Education + Washing Allowance.

As of now, we are calculating the Gratuity and Leave encashment on Basic only. When we arrive at the PF gross as Basic + Children Education + Washing Allowance;

Query on Gratuity Calculation

My query is: How to calculate Gratuity? Should it be only on Basic or on PF Gross (Basic + Children Education + Washing Allowance) as directed by the SC?

Your expert advice is highly appreciated and helpful to the HR community.

In the context of the recent Supreme Court judgment on PF and the amendment to the ESIC Act impacting salary structures and statutory calculations, the calculation of Gratuity should typically be based on the Basic salary component. Gratuity is usually calculated as a percentage of the Basic salary and is a defined benefit provided to employees upon meeting certain criteria like completion of a certain number of years of service.

Given that Gratuity is traditionally linked to the Basic salary, it is advisable to continue calculating Gratuity based on the Basic component alone, even after adjusting the PF Gross to include other salary components as per the SC directive. This approach ensures consistency with standard Gratuity calculation practices and aligns with the legal framework governing Gratuity payments.

Therefore, for your organization in Hyderabad, India, it is recommended to calculate Gratuity based on the Basic salary component, maintaining the existing calculation method despite the adjustment in PF Gross as directed by the Supreme Court. This will help ensure compliance with Gratuity regulations and maintain clarity in the calculation process for both the employer and employees.