Can a Company Change Gratuity Payment Policy Retroactively? Seeking Advice

Dear Sir,

Greetings for the day!

One of my friends is working in a Limited company. As per the company's current HR policy, gratuity is payable to all employees based on Gross Salary. However, the company has decided to change the policy WITH RETROSPECTIVE EFFECT to pay gratuity based on Basic+DA.

My question is, can the company do this?

Thank you.

No, this cannot be done without issuing notice under Section 9A of the Industrial Disputes Act. Moreover, gratuity, being an amount calculated based on the remuneration or salary as per the contract of service, reducing it from the salary to a basic salary and DA alone is illegal. Salary for the purpose of the computation of gratuity should include all fixed components of salary that are considered for payment if the employee is on paid leave or deduction if the employee is on leave without pay. Obviously, an allowance, say, house rent allowance, paid as reimbursement of rent paid by the employee for the rented house taken for his residence, or the rent paid by the employer for the employee's residence, can be excluded from the salary.

Dear Jignesh,

Madhu Sir has replied to your query in detail as per the provisions of the Payment of Gratuity Act, 1972, Section 2(s). However, in India, most of the companies are paying gratuity only on Basic plus Dearness Allowance, and where there is no DA, then only on Basic pay. No inspecting authority has any objection to it so far.

Regards,
Suresh

In this case, the company was earlier paying gratuity on gross salary, and making it on basic and DA is against the service conditions. Actually, gratuity is an amount to be calculated on the remuneration as per the contract of employment. Remuneration or salary as per the contract of employment cannot be reduced without changing the conditions of service, which, in turn, requires notice under Section 9A of the ID Act.

Yes, PL/EL in a credit balance can be used to adjust the notice period.