Is paying gratuity as a monthly component in salary instead of lump sum amount at the end of service a possibility as per the law? What could be the legal implications?
From India, Chandigarh
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From India, Chandigarh
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Gratuity is to be paid at the end of service or retirement, or upon completion of years of service as stipulated by the Payment of Gratuity Act. Why has the idea of monthly payments arisen? Consider a scenario where a person leaves after 2 years of service. In such a case, they are not entitled to gratuity. To grasp the concept of gratuity, it is essential to refer to the original act.
From India, Pune
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3180From India, Pune
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I agree with you. I did read the gratuity act; however, I just wanted to find out the feasibility and consequences of this kind of payout as I am doubtful myself. I wanted to get some advice from this experienced group.
From India, Chandigarh
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From India, Chandigarh
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Gratuity is payable only after the service comes to an end. Paying gratuity every month militates against the very concept of gratuity itself. As far as CTC is concerned, the gratuity component could be factored in, but actual payment is neither helpful legally in discharging the liability nor is it a practice in the industry.
From India, Mumbai
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From India, Mumbai
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Provident Fund, Pension, and Gratuity
Provident Fund, Pension, and Gratuity are the triple terminal benefits provided to the working class as measures of social security when they become jobless due to various reasons like old age, ill health, redundancy, resignation, etc. If you critically analyze these concepts, the maturity of benefits is always interlinked with the cessation of the beneficiary's employment beyond a certain age or a certain predetermined number of years of service. Therefore, the idea of periodical payment of Gratuity while the incumbent is still in service, though seemingly fanciful, will certainly fail to achieve the purpose for which it was primarily conceptualized.
From India, Salem
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Provident Fund, Pension, and Gratuity are the triple terminal benefits provided to the working class as measures of social security when they become jobless due to various reasons like old age, ill health, redundancy, resignation, etc. If you critically analyze these concepts, the maturity of benefits is always interlinked with the cessation of the beneficiary's employment beyond a certain age or a certain predetermined number of years of service. Therefore, the idea of periodical payment of Gratuity while the incumbent is still in service, though seemingly fanciful, will certainly fail to achieve the purpose for which it was primarily conceptualized.
From India, Salem
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Dear Sandeep,
I have no idea about such a proposal. Already, the amendment to the rules under the IESO Act, 1946, has diluted the concept of minimum qualifying service in respect of FTC employment regarding the payment of gratuity to such employees. So, anything may happen, including the scrapping of qualifying service.
From India, Salem
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I have no idea about such a proposal. Already, the amendment to the rules under the IESO Act, 1946, has diluted the concept of minimum qualifying service in respect of FTC employment regarding the payment of gratuity to such employees. So, anything may happen, including the scrapping of qualifying service.
From India, Salem
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Dear Poonam, I think Mr. Rao has clearly explained the position with the extract of the relevant section of the Act. When the termination of employment leading to the payment of gratuity is due to the death of the employee or otherwise, the formula remains the same—i.e., the amount of gratuity depends on the length of service before the date of termination. Therefore, it follows that in scenario-1, the nominee would receive gratuity for 4 years by rounding off the principle, and in the latter case for 6 years if the period beyond the 6th year falls short of 6 months.
From India, Salem
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From India, Salem
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Why gratuity cannot be paid as a monthly salary component
Mr. Umakanthan explained well why gratuity cannot be paid as a component of salary every month. It is a retiral benefit that offers economic security when a person is not employed, enabling them to earn some money regularly by gainfully investing the lump sum amount.
Risks of including gratuity in monthly salary
Secondly, if an amount is paid as a component of salary, even ostensibly as gratuity, it is likely to acquire the character of part of wages by the definition of wages in various Acts. This may pose a risk of it being counted for PF, ESI, and even for gratuity payment.
B. Saikumar
HR & Labour Relations Adviser
Navi Mumbai
From India, Mumbai
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Mr. Umakanthan explained well why gratuity cannot be paid as a component of salary every month. It is a retiral benefit that offers economic security when a person is not employed, enabling them to earn some money regularly by gainfully investing the lump sum amount.
Risks of including gratuity in monthly salary
Secondly, if an amount is paid as a component of salary, even ostensibly as gratuity, it is likely to acquire the character of part of wages by the definition of wages in various Acts. This may pose a risk of it being counted for PF, ESI, and even for gratuity payment.
B. Saikumar
HR & Labour Relations Adviser
Navi Mumbai
From India, Mumbai
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As very well explained by Mr. Umankanthan and Mr. Nathrao, it's incorrect to pay Gratuity in advance or in installments along with the monthly salary. Moreover, the Gratuity amount due will be as per the Basic pay on the last working day of the employee; as such, it may not be feasible for anyone to preempt the due amount.
However, for reasons best known—as per the respective company policy—if an employee seeks and is paid in advance, with an agreed term (duly documented) that the unrefunded part of the advance may be settled against his future Gratuity dues, then only it can be legally correct to recover such outstanding dues/advances from future Gratuity dues. Written employee consent is a must since it is a recovery from a statutory due (Gratuity can't be otherwise adjusted or attached with any other dues/advances, unless otherwise authorized by a court for special reasons as considered).
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However, for reasons best known—as per the respective company policy—if an employee seeks and is paid in advance, with an agreed term (duly documented) that the unrefunded part of the advance may be settled against his future Gratuity dues, then only it can be legally correct to recover such outstanding dues/advances from future Gratuity dues. Written employee consent is a must since it is a recovery from a statutory due (Gratuity can't be otherwise adjusted or attached with any other dues/advances, unless otherwise authorized by a court for special reasons as considered).
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Dear Mr. Moorthy,
I beg to disagree with your comment. Gratuity is to be paid only on exit after meeting the requirements as specified in the Payment of Gratuity Act. It cannot be paid in monthly installments regardless of any individual agreement with the company. The law is very clear, and we should not try to find loopholes or circumvent the law.
Including a monthly amount in CTC is okay but cannot be paid until 5 years or over or death.
From India, Pune
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I beg to disagree with your comment. Gratuity is to be paid only on exit after meeting the requirements as specified in the Payment of Gratuity Act. It cannot be paid in monthly installments regardless of any individual agreement with the company. The law is very clear, and we should not try to find loopholes or circumvent the law.
Including a monthly amount in CTC is okay but cannot be paid until 5 years or over or death.
From India, Pune
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@Mr. Nathrao, thank you. What I stated was exactly the same. The due date for gratuity is clearly stipulated, and no doubt should arise in anyone's mind. It cannot be part of the salary nor payable in advance.
Part 2 of my statement above concerns the process for the recovery of outstanding advances, if any, to be adjusted against future Gratuity dues (as and when it's due), with the clear consent of the employee given in writing. This should not be confused with the due date for the payment of Gratuity.
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Part 2 of my statement above concerns the process for the recovery of outstanding advances, if any, to be adjusted against future Gratuity dues (as and when it's due), with the clear consent of the employee given in writing. This should not be confused with the due date for the payment of Gratuity.
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Dear Koragoankar ji,
Please see the attached AP Govt notification for compulsory gratuity insurance. The same is applicable for Telangana as well. Regarding Maharashtra, please refer to section 4A in the attachment provided, which stipulates compulsory gratuity insurance.
Thank you.
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Please see the attached AP Govt notification for compulsory gratuity insurance. The same is applicable for Telangana as well. Regarding Maharashtra, please refer to section 4A in the attachment provided, which stipulates compulsory gratuity insurance.
Thank you.
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I also concur with Mr. Keshav Korgaonkar that the State of Maharashtra has not notified gratuity insurance rules in terms of Section 4A on the lines of AP & Telangana. Section 4A will not be in force in a State unless the State Government concerned notifies it to be in force, as is evident from the commencing lines of Section 4A which state, "with effect from such date as may be notified by the appropriate government in this behalf..."
Regards, B. Saikumar HR & Labour Relations Adviser Navi Mumbai
From India, Mumbai
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Regards, B. Saikumar HR & Labour Relations Adviser Navi Mumbai
From India, Mumbai
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Sirs,
How to counter a labor contractor who, for example, provides security services or personnel, collects the gratuity amount from the company, and releases a contractual employee before completing five years of service, thus pocketing the employee's gratuity amount?
What options are available to the company, the principal employer?
From India, Pune
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How to counter a labor contractor who, for example, provides security services or personnel, collects the gratuity amount from the company, and releases a contractual employee before completing five years of service, thus pocketing the employee's gratuity amount?
What options are available to the company, the principal employer?
From India, Pune
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Reposted......
Sirs,
How to counter a labor contractor, for example, providing security services/personnel, who collects the gratuity amount from the company and releases a contractual employee before completion of 5 years (eligibility) of service, pocketing the gratuity amount?
What options are available to the company, the principal employer?
From India, Pune
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Sirs,
How to counter a labor contractor, for example, providing security services/personnel, who collects the gratuity amount from the company and releases a contractual employee before completion of 5 years (eligibility) of service, pocketing the gratuity amount?
What options are available to the company, the principal employer?
From India, Pune
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Dear Sandeepsahni, if it is a pure manpower contract, you can exclude the gratuity amount from the contractor's monthly costing. Ask the contractor to submit a quote/bill without the gratuity component. Pay the gratuity amount based on actual working/payment against documentary evidence (only when the employee completes 5 years of service).
However, in the case of transferable service, it is a bit difficult to identify the period, especially in security contracts where you can't predict or calculate the service period, as this is a movable nature job. An employee may have worked in another organization long ago and been deputed at your site for a short period before leaving the job. In such cases, the contractor is liable to pay gratuity, even though the employee has not completed 5 years with you. In such cases, you can ask the contractor to raise a separate bill for the period the employee was deputed at your location. The contractor will bear the balance amount for other locations.
I hope my point is clear to you. Experienced members can shed more light on the matter.
From India, Delhi
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However, in the case of transferable service, it is a bit difficult to identify the period, especially in security contracts where you can't predict or calculate the service period, as this is a movable nature job. An employee may have worked in another organization long ago and been deputed at your site for a short period before leaving the job. In such cases, the contractor is liable to pay gratuity, even though the employee has not completed 5 years with you. In such cases, you can ask the contractor to raise a separate bill for the period the employee was deputed at your location. The contractor will bear the balance amount for other locations.
I hope my point is clear to you. Experienced members can shed more light on the matter.
From India, Delhi
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If gratuity is paid every month with salary, then it will become taxable under the Income Tax Act, 1961. However, when gratuity is paid as a lump sum on retirement, then a certain amount is non-taxable. This amount, which will not attract income tax, is likely to be enhanced to INR 20 Lakhs.
From India, Mumbai
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From India, Mumbai
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If gratuity is paid every month, then it is not considered gratuity as per the Payment of Gratuity (POG) Act; it is rather a part of the employee's monthly salary. Additionally, the employee will certainly have a claim over the gratuity as per the POG Act upon separation after completing 5 years of continuous service. Section 4 of the Act stipulates that gratuity shall be payable to an employee upon the termination of their employment after they have rendered continuous service for not less than five years.
When any payment is due upon termination, how can it be paid before termination on a monthly basis? Such questions should not arise from the HR fraternity. It is important to note that this would pose an additional burden for the employer.
From India, Mumbai
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When any payment is due upon termination, how can it be paid before termination on a monthly basis? Such questions should not arise from the HR fraternity. It is important to note that this would pose an additional burden for the employer.
From India, Mumbai
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Query on Gratuity Payment After Company Transition
Here is the new issue; kindly provide your suggestions:
One employee has been working at "XYZ Industries" for 3 years. Now, "XYZ Industries" has been closed by the owners, and all the workers have been shifted to a new firm, "XYZ_NEW_firm".
In this case, the query is as listed below:
1) Now, one employee has resigned from his job at "XYZ_NEW_firm" after 2 years and claims gratuity, stating, "I have completed 5 years" (3 years in "XYZ Industries" + 2 years in "XYZ_NEW_firm").
In this scenario, is it the legal liability of "XYZ_NEW_firm" to pay gratuity to the resigned employee?
Kindly provide a solution.
Best Regards,
Max
From India, New Delhi
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Here is the new issue; kindly provide your suggestions:
One employee has been working at "XYZ Industries" for 3 years. Now, "XYZ Industries" has been closed by the owners, and all the workers have been shifted to a new firm, "XYZ_NEW_firm".
In this case, the query is as listed below:
1) Now, one employee has resigned from his job at "XYZ_NEW_firm" after 2 years and claims gratuity, stating, "I have completed 5 years" (3 years in "XYZ Industries" + 2 years in "XYZ_NEW_firm").
In this scenario, is it the legal liability of "XYZ_NEW_firm" to pay gratuity to the resigned employee?
Kindly provide a solution.
Best Regards,
Max
From India, New Delhi
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Payment of Gratuity Act, 1972 & The Rules.ppt
Monthly Salary Statement - CTC and TDS Calculator.xls
THE PAYMENT OF GRATUITY ACT 1972.doc