Respected All,
I have received an offer letter from an organization wherein they have offered me a basic salary of 10,329, and they are deducting Rs. 497 from my monthly gross salary as a part of gratuity. Am I actually supposed to pay this from my salary? If yes, then on what basis has this amount been decided?
From India, Mumbai
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2I have received an offer letter from an organization wherein they have offered me a basic salary of 10,329, and they are deducting Rs. 497 from my monthly gross salary as a part of gratuity. Am I actually supposed to pay this from my salary? If yes, then on what basis has this amount been decided?
From India, Mumbai
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Hi,
Gratuity is paid by the employer to their employees when an employee has worked a minimum of 5 years with them as part of a retirement or resigning benefit as stated by the law or act. Deducting from an employee's gross salary is not fair. However, they can show it in CTC as part of the employer's contribution to an employee. So, do check with them. It's good if it is included as part of CTC, but if it is deducted from the gross salary, they cannot do so.
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Gratuity is paid by the employer to their employees when an employee has worked a minimum of 5 years with them as part of a retirement or resigning benefit as stated by the law or act. Deducting from an employee's gross salary is not fair. However, they can show it in CTC as part of the employer's contribution to an employee. So, do check with them. It's good if it is included as part of CTC, but if it is deducted from the gross salary, they cannot do so.
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Gratuity is the reward in the form of money from an employer to his employee upon termination for their past services, given as a gesture of gratitude towards the services rendered. As Mr. Christopher has advised that it cannot be deducted from the Gross Salary but can be adjusted in CTC, I strongly state that it should not even be adjusted in CTC as a component. Logically, it should be given from the employer's pocket and not counted as a CTC component. However, nowadays, we HR personnel guide the employer to utilize this component as part of CTC.
In my view, this is not a fair practice by the employer. It is up to you whether you accept it or not.
From India, Ahmadabad
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In my view, this is not a fair practice by the employer. It is up to you whether you accept it or not.
From India, Ahmadabad
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Thank you, gentlemen, for your valuable inputs. With the help of the inputs provided by you, I have requested my HR to explain that to me before accepting the offer. I will keep you posted on it. Thanks :)
From India, Mumbai
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From India, Mumbai
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Few companies and HR professionals are very smartly using the term CTC and putting all their expenses towards an employee under their CTC, whether it is a matter of EPF, gratuity, or other benefits. When an employee asks about these expenses, they claim that the particular amount is being invested for the employee, which is why it is included in the CTC.
Ideally, a company should not add or deduct any amount from the salary for gratuity, and good companies are following this practice.
From India, Lucknow
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Ideally, a company should not add or deduct any amount from the salary for gratuity, and good companies are following this practice.
From India, Lucknow
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Hi,
CTC means Cost to the Company and not cost to the employee. It's always better to include all direct and indirect costs in the CTC for better understanding. Today, everybody is well aware of the salary breakup given by an employer. We can't just rate a company based on their CTC workings. The only concern here is if the HR person details the breakup before or after the offer, then there won't be any doubts or queries raised because of this. So, it's not harmful to include anything with a briefing to the employee.
Thank you.
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CTC means Cost to the Company and not cost to the employee. It's always better to include all direct and indirect costs in the CTC for better understanding. Today, everybody is well aware of the salary breakup given by an employer. We can't just rate a company based on their CTC workings. The only concern here is if the HR person details the breakup before or after the offer, then there won't be any doubts or queries raised because of this. So, it's not harmful to include anything with a briefing to the employee.
Thank you.
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Dear Saji,
The concept of CTC has been well explained by Mr. Christopher. The Gross salary is the salary payable to the employee on a monthly basis. Thereafter, LTA, Medical reimbursement, Bonus, etc., are payable to the employee as per the terms and conditions of employment and statutory provisions.
However, the employer, on his part, has to make provisions for his liability in respect of employees working in the organization. With this in view, components such as Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., are added and shown as Cost To Company (CTC).
In other words, if the employee were to join some other organization which does not:
a) Offer PF coverage (by applying the wage ceiling available under the act),
b) have Superannuation benefits (Generally 15% of the employee's basic salary is invested in LIC's superannuation scheme, from which the employee gets benefits on his superannuation or separation from service after fulfilling conditions laid down under the scheme),
c) provide Uniform (If the company does not provide uniform, the employee needs to buy shirting & suiting for his daily wear to the organization),
d) have canteen facility (if there is no canteen, the employee has to make his food arrangements),
e) have Transport facility (if there is no transport facility, he has to commute to the place of work at his expense),
f) have a Mediclaim facility (either the employee & his family are not covered or the employee has to pay the premium from his pocket),
g) have a Personal Accident Policy (The employee may lose the weekly benefit available under the Policy and the compensation payable to his dependents in the event of an unfortunate death of the employee).
Either the employee has to spend additionally or does not get accrued benefits from the employer.
Weekly off, Holidays, etc., are offered by almost all companies, and hence comparison may not be relevant. For the employee to make an apple-to-apple comparison, CTC is shown by employers for him to draw his conclusion.
This is the reason why companies show this as part of CTC to indicate to the candidates the benefits in addition to the salary being paid. Some companies even show variable pay packages such as performance incentives as part of CTC. If the employee/ company performs, he gets the incentive to the extent of performance.
In this context, showing perquisites/benefits as part of CTC is not uncommon among employers.
Regards,
M.V. Kannan
From India, Madras
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The concept of CTC has been well explained by Mr. Christopher. The Gross salary is the salary payable to the employee on a monthly basis. Thereafter, LTA, Medical reimbursement, Bonus, etc., are payable to the employee as per the terms and conditions of employment and statutory provisions.
However, the employer, on his part, has to make provisions for his liability in respect of employees working in the organization. With this in view, components such as Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., are added and shown as Cost To Company (CTC).
In other words, if the employee were to join some other organization which does not:
a) Offer PF coverage (by applying the wage ceiling available under the act),
b) have Superannuation benefits (Generally 15% of the employee's basic salary is invested in LIC's superannuation scheme, from which the employee gets benefits on his superannuation or separation from service after fulfilling conditions laid down under the scheme),
c) provide Uniform (If the company does not provide uniform, the employee needs to buy shirting & suiting for his daily wear to the organization),
d) have canteen facility (if there is no canteen, the employee has to make his food arrangements),
e) have Transport facility (if there is no transport facility, he has to commute to the place of work at his expense),
f) have a Mediclaim facility (either the employee & his family are not covered or the employee has to pay the premium from his pocket),
g) have a Personal Accident Policy (The employee may lose the weekly benefit available under the Policy and the compensation payable to his dependents in the event of an unfortunate death of the employee).
Either the employee has to spend additionally or does not get accrued benefits from the employer.
Weekly off, Holidays, etc., are offered by almost all companies, and hence comparison may not be relevant. For the employee to make an apple-to-apple comparison, CTC is shown by employers for him to draw his conclusion.
This is the reason why companies show this as part of CTC to indicate to the candidates the benefits in addition to the salary being paid. Some companies even show variable pay packages such as performance incentives as part of CTC. If the employee/ company performs, he gets the incentive to the extent of performance.
In this context, showing perquisites/benefits as part of CTC is not uncommon among employers.
Regards,
M.V. Kannan
From India, Madras
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Dear Mr. Kanan,
According to my view, facilities like Canteen/Uniforms/Medical, etc., cannot be counted in CTC, as Medical is a statutory requirement which the employer has to provide as per the relevant statutes. If an employee who is Jain/Swaminarayan would not prefer to take the food available in the canteen, he may bring tiffin. Would you force him to take the canteen facility? Uniform is provided to show uniformity among the employees. I have a lady candidate who belongs to the Muslim community and wears her burqa. She refused to wear the uniform which is against her religious ethics. Should we force her to wear the uniform or should we terminate her for just not wearing the uniform? These facilities provided by any company cannot be forced upon the employee and thus cannot be part of CTC.
Regarding Gratuity, it is given at the time of leaving the organization as a gesture, which we are not sure whether the employee will stay with the company for not less than 5 years.
Last but not least, it was not to hurt the sentiments of either Mr. Christopher or any HR fraternity but to have revealed my views, which are not necessarily to be accepted by anyone.
From India, Ahmadabad
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According to my view, facilities like Canteen/Uniforms/Medical, etc., cannot be counted in CTC, as Medical is a statutory requirement which the employer has to provide as per the relevant statutes. If an employee who is Jain/Swaminarayan would not prefer to take the food available in the canteen, he may bring tiffin. Would you force him to take the canteen facility? Uniform is provided to show uniformity among the employees. I have a lady candidate who belongs to the Muslim community and wears her burqa. She refused to wear the uniform which is against her religious ethics. Should we force her to wear the uniform or should we terminate her for just not wearing the uniform? These facilities provided by any company cannot be forced upon the employee and thus cannot be part of CTC.
Regarding Gratuity, it is given at the time of leaving the organization as a gesture, which we are not sure whether the employee will stay with the company for not less than 5 years.
Last but not least, it was not to hurt the sentiments of either Mr. Christopher or any HR fraternity but to have revealed my views, which are not necessarily to be accepted by anyone.
From India, Ahmadabad
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Dear Mr. Kamble,
Gratuity Calculation = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26. If I consider even your DA to be nil, then also at the end of 5 years, you are entitled to Rs. 29,795/- as gratuity. The organization is deducting Rs. 497 per month from your salary. So, if you calculate 497 x 12 x 5, it comes to Rs. 29,820!
For the first time in my life, am I hearing of such abuse of a good HR practice of rewarding an employee for his loyalty. Do consider a number of times before considering the offer - this may just be the tip of an iceberg of HR manipulation.
Regards,
Dr. Parveen Ahmed Alam
From India, Calcutta
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Gratuity Calculation = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26. If I consider even your DA to be nil, then also at the end of 5 years, you are entitled to Rs. 29,795/- as gratuity. The organization is deducting Rs. 497 per month from your salary. So, if you calculate 497 x 12 x 5, it comes to Rs. 29,820!
For the first time in my life, am I hearing of such abuse of a good HR practice of rewarding an employee for his loyalty. Do consider a number of times before considering the offer - this may just be the tip of an iceberg of HR manipulation.
Regards,
Dr. Parveen Ahmed Alam
From India, Calcutta
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Hi all!
What is CTC? If I were to include Gratuity in CTC, is it not required to be given to the employee if he were to resign by the end of the 3rd year? Will the employer account this as his income on the resignation of the employee, as he had already accounted for it as an expense?
Indicating that so much of Gratuity is payable if an employee were to work for 5 years (Approx) is fine. Gratuity is calculated on the last salary drawn, how can anyone compute it before the 5th year??
Gratuity is a statutory payment, and all employers are required to pay it if an employee completes the required period of service. How does this change in comparison?
Best Regards,
From India, Bangalore
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What is CTC? If I were to include Gratuity in CTC, is it not required to be given to the employee if he were to resign by the end of the 3rd year? Will the employer account this as his income on the resignation of the employee, as he had already accounted for it as an expense?
Indicating that so much of Gratuity is payable if an employee were to work for 5 years (Approx) is fine. Gratuity is calculated on the last salary drawn, how can anyone compute it before the 5th year??
Gratuity is a statutory payment, and all employers are required to pay it if an employee completes the required period of service. How does this change in comparison?
Best Regards,
From India, Bangalore
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I have read all the comments mentioned, and some of them are useful and clear. CTC stands for cost to company. This is what a company has to spend on a particular employee. Nowadays, companies are clearly showing prospective employees what they will be spending on them. It is transparent and clear. Now, regarding statutory compliance, it is important that we all follow, and that is the very reason it is shown clearly in CTC. The company is liable to pay only if the employee has completed 4 years and 8 months or more; otherwise, it is not to be paid.
These are all the best practices that all companies wish to follow, and they are successful only with the combined effort of all employees and management.
- Chakradhar Reddy.
From India, Hyderabad
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These are all the best practices that all companies wish to follow, and they are successful only with the combined effort of all employees and management.
- Chakradhar Reddy.
From India, Hyderabad
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My question is: Is gratuity only to be disclosed in the statement as part of CTC, but no accounting entries are to be passed until 4 years 8 months? If yes, what entry is passed on completion of 4 years 8th month? Are all amounts, including prior period expenses, accounted for in the books?
How about accounting principles, accrual policy, accounting standard compliances, etc.?
From India, Bangalore
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How about accounting principles, accrual policy, accounting standard compliances, etc.?
From India, Bangalore
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Dear Nikhil Kambleji,
The simplest definition of Gratuity is a sum of money paid to an employee as a reward in the form of money at the end of a period of employment for his past services given as a gesture of gratitude towards the services rendered.
Now, to earn gratuity according to the Gratuity Act, it specifies that one gets to earn gratuity only after completing 5 years of continuous service in any company, and this amount gets accrued into the employee's account until the time he/she changes the job or retires. In any case, the gratuity account has to be settled upon the departure of the employee.
The calculation is half the basic salary (at the time of departure/quitting the company due to a change of job or retiring) multiplied by the number of years of service.
As Mr. Christopher has pointed out, it cannot be deducted from the Gross Salary but can be adjusted in CTC, and that's the practice followed by most IT Companies. I too strongly feel that this is not the right practice, and it should not be apportioned in CTC as a component because logically it should be disbursed by the employer company. For this reason, several companies have formed a 'trust,' and the members of the trust work on a certain base amount set aside by the company to enable gratuity disbursement. However, in recent times, LIC has a Group Gratuity Insurance, to which companies contribute a certain sum of money as a premium. The base for operation is that it should have a minimum of 100 members only then the policy can be made operational, as per the servicing viability of the insurance company.
What I have provided here is the broad policy. If one is interested, one can search on Google for both the Gratuity Act and also LIC's portal for specifics of LIC's Group Gratuity Scheme.
Finally, when you join a company and it apportions gratuity in your CTC, I'm afraid you have no option at all. You have to accept it without dispute, or you can choose not to join that company. There is no alternative whatsoever.
From India, Hyderabad
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The simplest definition of Gratuity is a sum of money paid to an employee as a reward in the form of money at the end of a period of employment for his past services given as a gesture of gratitude towards the services rendered.
Now, to earn gratuity according to the Gratuity Act, it specifies that one gets to earn gratuity only after completing 5 years of continuous service in any company, and this amount gets accrued into the employee's account until the time he/she changes the job or retires. In any case, the gratuity account has to be settled upon the departure of the employee.
The calculation is half the basic salary (at the time of departure/quitting the company due to a change of job or retiring) multiplied by the number of years of service.
As Mr. Christopher has pointed out, it cannot be deducted from the Gross Salary but can be adjusted in CTC, and that's the practice followed by most IT Companies. I too strongly feel that this is not the right practice, and it should not be apportioned in CTC as a component because logically it should be disbursed by the employer company. For this reason, several companies have formed a 'trust,' and the members of the trust work on a certain base amount set aside by the company to enable gratuity disbursement. However, in recent times, LIC has a Group Gratuity Insurance, to which companies contribute a certain sum of money as a premium. The base for operation is that it should have a minimum of 100 members only then the policy can be made operational, as per the servicing viability of the insurance company.
What I have provided here is the broad policy. If one is interested, one can search on Google for both the Gratuity Act and also LIC's portal for specifics of LIC's Group Gratuity Scheme.
Finally, when you join a company and it apportions gratuity in your CTC, I'm afraid you have no option at all. You have to accept it without dispute, or you can choose not to join that company. There is no alternative whatsoever.
From India, Hyderabad
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Dr. Alam,
The realities are quite different from a textbook situation. Every company adds as many things as possible to CTC. Many companies add training costs. Does it come to the employee? No way. But it's still added as a practice (check any CTC given in MBA colleges). Hongkong Bank used to add a discount on housing loans to the CTC, which the employee can't get in any case until working for 5 years (not sure if the practice is still alive). So, CTC is made to look high so that employees are attracted to it. Any smart employee will ignore all those that he is not actually getting. In fact, employees mostly focus on take-home amounts only.
Of course, I would like to know from the original poster whether he was referring to the CTC or what appears on his salary slip.
From India, Mumbai
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The realities are quite different from a textbook situation. Every company adds as many things as possible to CTC. Many companies add training costs. Does it come to the employee? No way. But it's still added as a practice (check any CTC given in MBA colleges). Hongkong Bank used to add a discount on housing loans to the CTC, which the employee can't get in any case until working for 5 years (not sure if the practice is still alive). So, CTC is made to look high so that employees are attracted to it. Any smart employee will ignore all those that he is not actually getting. In fact, employees mostly focus on take-home amounts only.
Of course, I would like to know from the original poster whether he was referring to the CTC or what appears on his salary slip.
From India, Mumbai
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Dear Mr. N. Kamble,
The company is well within its right to show Gratuity as a component in CTC. Components like Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., may be shown as a part of the employer's contribution to an employee. These components are generally negotiable.
Take care,
Sourav Mukherjee
From India, Bangalore
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The company is well within its right to show Gratuity as a component in CTC. Components like Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., may be shown as a part of the employer's contribution to an employee. These components are generally negotiable.
Take care,
Sourav Mukherjee
From India, Bangalore
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Dear Sourav,
Gratuity becomes a cost only after the completion of a minimum of 4 years and 10 months of service. There is no way one can negotiate the gratuity component with the employer. Even the employer himself can calculate approximate gratuity only in the 5th year. That's why accounting standards adopt actuary valuations for making provisions. All other calculations are only wild assumptions.
I think any component, by whatever name you call it, once included as part of CTC, is legally due and payable (directly or indirectly) to the employee and has to be paid. If gratuity is shown as part of CTC and an employee resigns after, say, 2 years, will this component be payable to him?
Best Regards,
Divakar
From India, Bangalore
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Gratuity becomes a cost only after the completion of a minimum of 4 years and 10 months of service. There is no way one can negotiate the gratuity component with the employer. Even the employer himself can calculate approximate gratuity only in the 5th year. That's why accounting standards adopt actuary valuations for making provisions. All other calculations are only wild assumptions.
I think any component, by whatever name you call it, once included as part of CTC, is legally due and payable (directly or indirectly) to the employee and has to be paid. If gratuity is shown as part of CTC and an employee resigns after, say, 2 years, will this component be payable to him?
Best Regards,
Divakar
From India, Bangalore
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wrong practice gratuity can’t be deducted from employee salary, but it should be the part of CTC which determine the cost of an employee. Thanks & Regards, From, Sumit Kumar Saxena
From India, Ghaziabad
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From India, Ghaziabad
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Agreed!
But if we do not know whether a person will be staying in the company for at least 5 years to avail of gratuity, how do the calculations go for gratuity from day one?
Sir, can you please explain how companies calculate gratuity to add to CTC as an employer contribution for an employee. Is it on a pro-rata basis?
Thanks!
From India, New Delhi
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But if we do not know whether a person will be staying in the company for at least 5 years to avail of gratuity, how do the calculations go for gratuity from day one?
Sir, can you please explain how companies calculate gratuity to add to CTC as an employer contribution for an employee. Is it on a pro-rata basis?
Thanks!
From India, New Delhi
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Greetings Saunee,
Gratuity provisions are made by the employer and added as part of CTC as follows. If the wages were Rs. 5000, the gratuity calculation will be Rs. 5000 X 15/26 = Rs. 2885 per annum. This amount is added to the CTC per annum and is approximately equivalent to 4.80% of the wages earned by the employee. Some companies have a Group Gratuity scheme with LIC of India and pay the Gratuity liability based on an actuarial valuation furnished by LIC. If an employee who is eligible to receive Gratuity leaves the company, the company works out the liability and submits an application to LIC, which then releases a cheque favoring the Group Gratuity fund of the company. Subsequently, the company releases the cheque to the employee.
Regards,
M.V. Kannan
From India, Madras
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Gratuity provisions are made by the employer and added as part of CTC as follows. If the wages were Rs. 5000, the gratuity calculation will be Rs. 5000 X 15/26 = Rs. 2885 per annum. This amount is added to the CTC per annum and is approximately equivalent to 4.80% of the wages earned by the employee. Some companies have a Group Gratuity scheme with LIC of India and pay the Gratuity liability based on an actuarial valuation furnished by LIC. If an employee who is eligible to receive Gratuity leaves the company, the company works out the liability and submits an application to LIC, which then releases a cheque favoring the Group Gratuity fund of the company. Subsequently, the company releases the cheque to the employee.
Regards,
M.V. Kannan
From India, Madras
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