Definition of wage for payment of Gratuity - only on Basic & DA OR to include all the allowances except HRA

Dear Sir,

I would like to have clarity about the definition of wage subsequent to the Code of Wages Act, 2019. Do we need to align with the Code of Wages Act for the definition of wages for the payment of gratuity? There is confusion regarding whether to pay the gratuity only on Basic & DA or to include all the allowances except HRA.

I need clarification from the seniors, please.

Dear Rangarajan,

The subject matter of payment of gratuity to industrial employees is covered under the Labour Code on Social Security, 2018, which is the compilation and consolidation of the provisions of existing 15 Labor Laws relating to social security of industrial employees, including the Payment of Gratuity Act, 1972. It will come into force w.e.f the date on which a notification is issued by the Central Government. To my knowledge, no such notification has been issued so far. Therefore, as of now, you need not be bothered about the things you mentioned. Hence, there is no change in the formula of calculation of statutory gratuity as provided for in the PG Act, 1972 - i.e., only the sum total of basic + dearness allowance last drawn on the date of termination of employment.

For the sake of academic interest, I would like to bring to your notice that the Code on SS, 2018 makes a distinction between the definitions of "wages" (Sec. 2.137) and "benefit wage" (Sec. 2.11) respectively. The former refers to the general meaning and the latter refers to the amount of wages that shall be used for the purpose of calculating the respective benefit contemplated under section 24 of the Code.

Salary consists of so many components like Basic, DA, HRA, Bonus, Commission, Allowances and Perquisites. But while calculating Gratuity, HRA, EPF and value of perquisites for rent free/concessional house we need to consider only few components of salary.
1) Salary definition for Gratuity–
A) Gratuity covered under Payment of Gratuity Act 1972-For this purpose salary means only Basic salary and Dearness Allowance (DA). No other salary components will not be considered for calculation.
B) Gratuity not covered under Payment of Gratuity Act 1972-For this purpose salary means Basic salary, Dearness Allowance (DA) and Commission (if paid as a % of turnover).

Mr. Rangarajan,

For wages under the Payment of Gratuity Act, 1972, please refer to my article published in 2017 (154) FLR Journal Section on page 94. The same is attached for your reference. I hope this clarifies your query.

I would like to add that the Code on Wages does not repeal the Payment of Gratuity Act, 1972.