Why Did Gratuity Salaries Drop? Seeking Advice on Explaining to Auditors

Auditor Query: Gratuity Salary Decrease

Kindly clarify why gratuity salaries have decreased for employees.

Emp: X
Salary - Gratuity: $17,200
Previous Salary: $17,500
Change in Salary: -3%
Comments: ?

Gratuity Payment Calculation

As per Section 4(2) of the Payment of Gratuity Act 1972, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned. Therefore, where the last drawn wage is Rs. 17,200 per month, the gratuity is payable at this rate.

Explanation for Reduction in Basic Salary

Only the employer has to explain the reason for the 3% reduction in the basic salary of the employees. This reduction may be due to restructuring the salary by adding the reduced amount in basic to any other allowances in the salary structure.

Impact on Gratuity Payment

The Payment of Gratuity Act, 1972, is not concerned with the revision of the salary structure, but it is concerned with the last drawn sum of basic + D.A, if any, payable to the employee on the date of termination of their employment for the purpose of gratuity payment.