How Does Adding Gratuity Impact Basic Salary and EPF Wages? Let's Discuss!

Hello Team, We are changing our structure this year, and we have added a provision for gratuity, which affects the salary structure (CTC, Gross, Basic), etc.

Impact of Gratuity on Salary Structure

My question is that last year the basic salary of the employee was $15,500, so PF was not deducted. However, in the current year, gratuity is included in CTC, so the basic salary of the employee is affected. My concern is that the basic salary is in ascending order; yet, due to the implementation of gratuity this year, its effect has been seen in the basic salary as well. Is this the right structure as it will affect the EPF wages?

I have attached the previous and current structures. Please review them and get back to me.

Thank you.

Hi, If the PF wages are more than 15,000/- and the employee was not covered under PF with the past employer, then the employee can be exempted from PF after collecting Form 11. However, if the Basic is reduced below 15,000/-, then PF contribution becomes compulsory. Therefore, wherever possible, try to avoid reducing the Basic salary.

No attachment was found in your post!

I am assuming that the employee joined last year and his basic salary was above the limit, and he didn't have PF in any previous organization.

If his basic salary is decreased in the new structure, then you will now need to cover him under PF, and thereafter the employee will continue to be under PF.

I think the structure is wrong if it is resulting in a reduction of the basic salary. You (or the management) need to rethink it.

Gratuity Payment on a Monthly Basis

Are you interested in paying gratuity on a monthly basis? This is absolutely wrong. If gratuity is a part of CTC and will be paid when it is due, that is okay.

PF and EPS Contributions

If PF Gross is more than ₹15,000 as a first-time job and you were not a member of EPFO earlier, the employer may avoid EPF and EPS payments. But if the employer is interested in paying PF, the entire amount will be in PF but not in EPS. It is essential to take FORM-11 from the employee at the time of joining.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons]

Understanding the Relationship Between EPF and Gratuity

There is no link between EPF and gratuity. It's left to your firm to implement the CTC structure. By doing so, there is no possibility of any impact on other components such as gross salary, deductions, net salary, or take-home pay. Gratuity is an annual cost not payable monthly or annually. Since this is a statutory liability of the employer, it applies every year. Therefore, "changing the structure now" is very strange and a violation of labor law regardless of previous years. I don't foresee any impact from implementing a CTC structure.