Seeking Advice: How to Handle Unpaid Gratuity and PF from a Charitable Trust Hospital?

My father was a doctor at a charitable trust hospital. After retirement, the trustee did not pay gratuity or PF, stating that no PF was deducted from the salary. We need advice on this matter from the labor ministry.

Hi Priyam, you'll find the necessary clarifications in these links: https://www.citehr.com/461953-charit...on-labour.html; https://indiankanoon.org/doc/1267183/; https://boardhr.blogspot.com/2019/10...ble-trust.html. However, we need to examine the provisions relevant to these as per the newly passed bills—the Labour Codes already circulated in the official Gazette of the Government of India, which have received the approval of the President of India. The implementation notification is awaited at any time now.

Also, sir, my father was a Class 1 Medical Officer in that charitable trust hospital. They paid him 30,000 as his last basic salary and stated the rest as an incentive. With that, his last drawn salary became 1,40,000. Will we receive the gratuity based on the 30,000 basic salary?

As regards to PF: Your father seems to be an exempted employee under the meaning of the EPF Act. His salary was above the threshold, and therefore, it was not mandatory to deduct any PF from your father's salary. As a result, no PF was deducted, and hence your father is not entitled to any PF benefits.

As regards to Gratuity: The Gratuity Act of 1972 is not applicable to public and charitable trusts. Therefore, your father is not entitled to any gratuity payment.

I hope you now have a clear understanding of the matter without any link to the issue.

I don't know how you can exempt a charitable institution from the purview of any labor law. As Mr. Kumar has pointed out, the matter was discussed at length earlier, and you may please go to the link provided https://www.citehr.com/461953-charit...on-labour.html.

If charitable institutions were to be excluded from PF, Gratuity, etc., you cannot find any institution meant for profit; everyone will be running their establishment for charity. Can you say that a hospital runs without collecting fees? What is the basis of paying a doctor an "incentive"? If the hospital was running it for charity, they should have paid the doctor a fee without fixing a monthly salary or incentive. The incentive part is very serious. An incentive is a variable amount that you get based on production, service, or under certain parameters. A charitable hospital cannot offer it because by offering an incentive, the management is motivating the employee to do more work or put in more labor. This shows that a master-servant relationship existed, and as such, the laws relating to servants should be applicable to the latter.

It's okay that since the salary exceeded Rs 15,000, he was excluded from PF. But he cannot be denied gratuity if he has served for five years. The gratuity will be based on the salary part without considering the variables, like the incentive.

Understanding Remuneration for Medical Professionals

A doubt arises about the remuneration paid to doctors who are carrying out their duties in consultancy, procedures, surgeries, progress reviews, emergency advice, administrative tasks, etc. They are compensated through various methods - wages/salary, fees, retainership, consultancy, per diem, per case, per visit, and more. Some may receive honorariums, incentives, or other forms of compensation, and may even be paid on an hourly basis. Regardless of the name used, these professionals, not only in the medical field but also in other industries, receive some form of 'remuneration' which might not always be referred to as 'wages or salary'. The frequency of payments can also vary, based on the level of skill involved. As long as payment is made in exchange for services rendered, other factors are not critical.

Gratuity and Its Obligations

Whether the organization is charitable or not, gratuity is not merely a gesture of affection but a benefit earned for the duration of service. Hence, once the condition of 5 years of continuous service is met, the obligation to provide gratuity arises and becomes due.

In this context, there are numerous court cases available online. An example is a judgment passed by the Gujarat High Court, which is attached and can shed more light on the subject.

Yes, if his incentive is part of a service contract, then it should be included in the wages/salary for deciding the amount of gratuity.

Systems of Remuneration Payment

There are a lot of systems of remuneration payment. By whatever name it is called, if the same is remuneration for the work done, it shall come under the heading of wages. Please refer to an Income Tax case (attached) wherein the hospital was deducting the TDS from the doctors as if they were paid consultancy/professional charges. However, the doctors were governed by the service conditions of the hospital, which included fixed working time, reporting at a certain time, leaving the hospital at a certain time, and prohibition of practicing or consulting outside the hospital or private practicing, etc. The IT observed that if these doctors were consultants, they should not be following the general HR policies of the hospital, and there should not be restrictive clauses regarding the engagement of other business or profits.

Incentives and Gratuity

In this case, the incentives shall also form part of remuneration which qualifies for gratuity, provided the incentive is based on the number of cases attended. It will have all the characteristics of a piece-rate wage.

Respected Madhu ji and other members, I am extremely sorry for stating that the Gratuity Act 1972 is not applicable to public and charitable trusts, and thank you for correcting me in a timely manner. I don't know what prompted me to respond to this query in the morning when my schedule is quite busy. I was glancing at various posts and came across this one with several links in the reply, which led me to respond hastily.

Dear Anamik Friend, I stand corrected. Your father is entitled to Gratuity if he has completed 5 years of service.

Thank you for your responses, sir. As of today, the charitable trust hospital gave us gratuity based on a basic salary of 30k. Sir, as you mentioned, the incentive should be included for the calculation of gratuity, but the trust did not and paid about 4 lac in gratuity for 24 years of service of my father.

Also, sir, my father joined in 1995 with a basic salary of 5500, which gradually increased to 30k until his retirement. The contract states that 50% will be paid as remuneration above the basic salary. Should we ask for gratuity again, and was it okay not to cut the PF in 1995 on a salary of 5500? Also, the trust did cut TDS of 30-50k every month from the income. If we have to file a case, please suggest whom we should consult in my small town. Thank you, sir.

Tax Deduction Under Income Tax Act

Please tell us under which section of the Income Tax Act they deduct the tax. If it is as per section 192, it is proof that he was paid the entire amount by way of salaries and allowances. Whereas, if they had deducted it under section 194J, the amount should have been accounted for as Professional Charges. You can also verify the TDS report. If it is Form 16, then the amount shown will be salary; whereas, if it is Form 16A, then it should be professional charges.

Understanding TDS Deductions

Deduction of Rs 30,000 to 50,000 per month by way of TDS shall mean that his entire remuneration was taken as salary paid. Had it been Professional Charges, it would be 10%. For a monthly remuneration of Rs 1,40,000, the professional charges should be around Rs 14,000. (It shall be even less than Rs 14,000 because the rate is 10% for the amount of professional charges paid over and above Rs 30,000). At the same time, if paid by way of salary, the TDS can be around Rs 35,000 to Rs 45,000.

Relevance of TDS Certificate

Since the TDS certificate is proof that declares the income of the employee by the employer himself, it would help you to find out on which amount they should calculate gratuity. Another very relevant thing is that if the doctor was following a timing applicable to other hospital staff, had applied for leaves whenever he required a leave, and was paid an incentive based on the number of patients attended, then there is a scope for reopening the case by approaching the Labour officials or appealing to the appellate authority.

I would like to get the opinion of Umakanthan Sir also.

Thank you for your prompt reply, sir. The trustee maintains a wages register in which they show the basic salary as 30k. They write the incentive (50% operation charges paid to us) and deductions of TDS with a pencil. In the second last column, they show the total amount—also written with a pencil. The last column shows the final salary of 30k, and they take the employees' signature on this with a stamp.

In the IT return, they do show the entire paid salary of 1,40k after the deduction of TDS in Form 16 Part A and B every month. However, when it comes to gratuity calculation, they show us the wages register my father signed in, which had words written with a pencil erased. Also, please comment on PF eligibility in this case, sir.

Maladjustment in Salary and PF Deductions

This is a clear case of maladjustment. You are not expected to write anything in a wage/salary register with a pencil. When they have deducted tax on the entire amounts, and that too under Section 192 of the IT Act, it shows that his salary was 1.4 lakhs per month.

PF Eligibility and Salary Considerations

Regarding PF, when your father joined the hospital some 24 years back, the salary should have been above Rs 6500 (5500 + 50% of operation charges). When we argue that total earnings, including the operation charges or incentives, should qualify for gratuity, the same should apply to PF as well. Obviously, on 1st September 2014, when the threshold limit was increased from Rs 6500 to Rs 15000, the salary would have been more than Rs 15000. As such, he would not fall under the PF brackets. If we claim that his basic salary was only Rs 5500 or less than Rs 15000 (as of 1-9-2014), then our demand for gratuity on total remuneration would fail.