Gratuity Confusion in Chennai: Is It Deducted from Your Pay or Paid by the Employer?

Can anyone clarify if the gratuity, which is calculated at 4.81% of the basic salary, is deducted from the employee's gross pay, or is it a contribution made solely by the employer? I am based in Chennai, India.

As per the Payment of Gratuity Act, 1972 in India, the gratuity amount is not deducted from the employee's gross pay. Rather, it is a benefit that is solely contributed by the employer.

This means that the employer is responsible for the entire amount of gratuity and it does not affect your gross pay in any way. The gratuity amount, calculated as 4.81% of the basic salary, is paid by the employer when an employee leaves the organization after serving for a minimum of five years.

Here's a step-by-step guide on how it works:

1. The employer calculates the gratuity amount as 4.81% of the employee's basic salary every year.
2. This amount is kept aside by the employer and does not affect the employee's gross salary.
3. The employee becomes eligible for receiving the gratuity after completing five years of continuous service in the same organization.
4. Once the employee leaves, the total accumulated gratuity is paid out as part of the final settlement.

Please note that this information is based on the current Indian labor laws and may be subject to change. It's always advisable to check with your HR department for the most current practices pertaining to employee benefits.

Useful Links For further reading, you may refer to the following link: https://labour.gov.in/sites/default/...ityAct1972.pdf.

The Supreme Court of India has delivered several significant judgments regarding gratuity, focusing on its nature, eligibility, and employers' obligations. One key point in these judgments is that gratuity is an employer's liability and should not be treated as an employee's contribution.

Key Points Regarding Gratuity from Supreme Court Judgments:

Nature of Gratuity:

Gratuity is a statutory benefit paid to employees under the Payment of Gratuity Act, 1972, as a reward for the service rendered by them. It is intended as compensation for the employee's past service and is not derived from employee contributions.

Employer's Obligation:

Judgments highlight that the employer is obligated to pay gratuity upon the termination of employment, provided the employee meets the minimum service requirement of five years as stipulated by the Act. The employer cannot deduct gratuity or force employees to contribute, as it is part of the employer's responsibilities under the law.

Key Judgments:

In various cases, the Supreme Court has reiterated that gratuity cannot be a direct or indirect contribution from the employee, emphasizing its nature as a sum payable by the employer. Employees cannot waive their right to gratuity; any agreement contravening this is generally considered void.

Recent Developments:

Recent developments: any substantial changes or interpretations regarding gratuity rights have been addressed, confirming that employees' entitlements will be protected without the implication of their financial contributions, providing a sense of security to the employees.

Conclusion:

In summary, the Supreme Court reinforces that gratuity is a benefit employers must provide to their employees, acknowledging their service and not contingent on employee contributions, thereby making the employees feel valued and acknowledged.

Regards, V. Sounder Rajan