Gratuity in IT Companies: Should It Be Part of CTC or Listed Separately?

Dear All, Gratuity component, as it is applicable to all employees, will be part of the CTC or shown as CTC + gratuity. As per the Gratuity Act, what is the correct method to show employees on paper for an IT Product Development company? Kindly elaborate.

Thanks & Regards,
Pourna

Hi, Gratuity is the monetary amount that is payable to the employee of an organization under the Payment of Gratuity Act 1972. An employee is eligible to receive the gratuity amount only after they complete a period of 5 or more years with the company. It is better if gratuity can be shown as a separate component outside of the CTC.

Thanks for the response. Is there any legal obligation if an employer shows part of the CTC, which would be against the Gratuity Act 1972? Kindly advise.

Regards, Pourna.

Hi, You may see the CTC. Some companies will have a tie-up with LIC for Gratuity (under the Group Gratuity scheme), and whatever premium is paid by the employer, they use to show it in the CTC. However, deducting a portion of wages/salary from employees towards Gratuity is not legal. Similarly, though it might form part of CTC, Gratuity will be eligible only if the employee completes 5 years of continuous service. Employees have no right to claim before the completion of 5 years of service.

Gratuity is a statutory payment forming a part of the employer's expenses for employees, so it can be included in CTC. What is to be shown in the payslip is what is prescribed by law, in the respective rules. I presume you are covered as per the Shops & Establishment Act of the State Government, then the format prescribed under that Act has to be followed; otherwise, it has to be as per the Payment of Wages Act. In both cases, the gratuity premium cannot be indicated in the wage slip.

In my considered opinion, C.T.C. is just an accounting tool that assists in facilitating negotiation in wage/salary determination of employees. As such, it cannot override the statutory provisions of any Labor Law or the Indian Contract Act, 1872.

All the expenses, as well as perks, the value of which can be computed in terms of money, whether they are statutory or otherwise, incurred by the employer to keep an employee under his employment, would form the C.T.C. per annum from the employer's accounting perspective. In other words, it is the total annual cost of employment per employee. Thus, there is a distinction between the monthly salary comprising different components actually payable to the employee and the annual total cost of his employment in which the monthly salary stands subsumed.

If there is a shared understanding of this difference on the part of both the employer and the employee, the question of "deduction from" or "addition to" C.T.C. would not arise in respect of certain benefits, whether statutory or contractual.