Salary Deductions: Is It Fair for My Company to Take Gratuity?

Hi all, if my company is deducting gratuity from my salary, is that okay?

Hi, no employer is supposed to deduct any amount from your gross salary towards gratuity payment. Gratuity is a lump sum amount paid by the employer to the employee as a form of appreciation for their long service and contribution to the company. The employer can either pay the gratuity amount directly at the time of separation or can avail themselves of the services of a group gratuity scheme provided by various insurance companies. In such a scenario, the employer can show the monthly premium incurred by them for the individuals in the CTC salary of the respective employees.

Hi Yashodha, Your question is not clear. Do you mean that the company is deducting the gratuity portion from your gross wages or are they declaring it as part of the CTC? If it's declared as part of the CTC, then there is no harm and it can't be part of the monthly gross wages.

Gratuity is not a part of gross salary but part of CTC.

The concept of gratuity under the Payment of Gratuity Act, 1972, is a one-time terminal benefit in a lump sum payable to an employee by their employer upon completion of five years of continuous service in the establishment. Therefore, it does not require any deduction from the salary or wages of the employee concerned.

I presume that Gratuity was shown as part of your Cost To Company (CTC). This is done by the employer to make provision for the payment of Gratuity and to arrive at an actuarial valuation each year on the Gratuity liability.

Some employers contribute to Group Gratuity Scheme around 5% of your Basic salary and Dearness Allowance. This is a cash outflow done by the Company to manage their Gratuity Fund.

So as a practice, the Company shows this as part of CTC.

This does not mean that they are recovering Gratuity from your salary.

You will appreciate that the employer also shows the Employer's share of PF contribution as part of CTC. Here again, the employer's share of PF contribution is not deducted from your salary.

Some Companies show the premium paid for you or your family, as the case may be, towards Mediclaim coverage. This is also shown as part of CTC. As aforementioned, this cash outflow from the Company done for you is shown as part of CTC.

Trust the matter is clarified.

Regards,

MVK

If the employer follows the CTC pattern, then gratuity is part of CTC. Many employers follow a system of maintaining a separate 'gratuity fund' under 'Actuary,' in which case the gratuity amount is remitted to the credit of that fund every year. Even here, no gratuity is 'recovered' from the salary.