Gratuity in CTC: Do Employees Get It if They Leave Within a Year?

Dear All,

Nowadays, the company prepares a salary annexure in which gratuity is included as a part of CTC. I would like to know if an employee leaves the organization within a year, will they receive the gratuity amount or not? Kindly, help me out.

Inclusion of Gratuity in CTC

I think immense queries have arisen about this on this platform, and experts have already given their opinions.

For the purpose of clear projection of salary or CTC (Cost to Company), some companies often do this. Not only gratuity but the employer's share on Provident Fund/ESI is also mentioned because these elements are costs from the employer's view; hence, this is also correct.

However, the payment of Gratuity shall be made in accordance with the provisions of the Payment of Gratuity Act, where you have to put in the minimum stipulated service of 5 years.

As a follow-on to Rkn61's above reply, I would like to add that if the statement of CTC forms part of the offer letter, there is every possibility for the employee to argue later, if they exit any time within 5 years of continuous service, that proportionate gratuity should be paid by the employer since it is mentioned in the offer. This could be construed as a better term of gratuity as per the contract of employment.

Therefore, my submission would be that a rider may be added stating that in the event of exit from employment, the payment of gratuity would be strictly subject to the provisions of the Payment of Gratuity Act, 1972.

Dear Mr. Rawat,

Nowadays, companies are including all salary components in the CTC (Cost to Company) part because ultimately, this is the cost to the company. As per the rules, employees will receive the benefits of all the components. In the case where an employee leaves the company within a year or before completing 4 years and 241 days, they will not be entitled to Gratuity.

Regards,
Himanshu Sharma

If gratuity is included in FCTC, it is the employer's obligation to make the payment of gratuity even if the employee leaves before completing 5 years of service.

Dear Friends,

Thank you for your suggestion. However, based on my experience, if a company includes gratuity as a part of the CTC in the salary annexure and an employee leaves the organization within a year, they will receive the deducted gratuity amount. I received my gratuity from my last company.

Thanks & Regards, Kamaljeet Singh Rawat

Gratuity and CTC Components

It is fortunate to receive gratuity after working only one year. All components in CTC are conditional. One cannot receive a monthly salary if all leaves are exhausted and the employee is absent. Therefore, it is a condition to receive a monthly salary to be present on all working days or to have authorized leave sanctioned if there is leave available in the employee's leave account. There are many more examples, such as LTA and Canteen Subsidy.

Gratuity Eligibility Conditions

Similarly, though gratuity is part of CTC, it does not mean that without fulfilling eligibility conditions, one can claim gratuity. There are organizations offering company buses to employees for office commuting, and a notional cost is built into CTC. If an employee is absent for, say, 10 days in a month and does not avail of the company's transport, they cannot claim the proportionate amount as it is part of CTC.

Incentives and CTC

In offer letters, many organizations mention different components as CTC. For instance, yearly incentives will be paid at the end of the year, and the employee must be on the payroll of the organization at the time of disbursement. If any employee leaves the organization after working for 8 months, they cannot claim the incentive on a prorated basis.

Regards, S K Bandyopadhyay (Howrah, WB)

[Email Removed For Privacy Reasons]

The question of gratuity for those who have met the eligibility criteria of 5 years of 'continuous service' will be answered when the 'Labour Codes' are implemented, likely in December 2020. Until that time, all pending cases will need to be settled in accordance with the Gratuity Act.