Dear Sir,
We are a manufacturing unit with approximately 150–200 employees on our company rolls. All our employees have been issued appointment letters mentioning their CTC structure.
The management has now proposed to include 4.81% towards gratuity in the CTC and issue revised (backdated) appointment letters accordingly. However, upon implementing this change, it is observed that the cash-in-hand (take-home salary) of employees will reduce as compared to the previously issued CTC structure.
We seek your guidance on the following points:
Whether including 4.81% gratuity in CTC retrospectively is legally permissible under the Payment of Gratuity Act, 1972 or any other applicable labour law.
If such retrospective change is not allowed, what would be the correct and legally compliant procedure to implement this revision prospectively.
Whether employee consent is mandatory before implementing such change, since it affects take-home pay.
Kindly advise the appropriate solution and compliance requirements as per the applicable Acts.
From India, Mohali
Acknowledge(0)
Amend(0)
4We are a manufacturing unit with approximately 150–200 employees on our company rolls. All our employees have been issued appointment letters mentioning their CTC structure.
The management has now proposed to include 4.81% towards gratuity in the CTC and issue revised (backdated) appointment letters accordingly. However, upon implementing this change, it is observed that the cash-in-hand (take-home salary) of employees will reduce as compared to the previously issued CTC structure.
We seek your guidance on the following points:
Whether including 4.81% gratuity in CTC retrospectively is legally permissible under the Payment of Gratuity Act, 1972 or any other applicable labour law.
If such retrospective change is not allowed, what would be the correct and legally compliant procedure to implement this revision prospectively.
Whether employee consent is mandatory before implementing such change, since it affects take-home pay.
Kindly advise the appropriate solution and compliance requirements as per the applicable Acts.
From India, Mohali
Acknowledge(0)Amend(0)
The inclusion of gratuity in the Cost to Company (CTC) is a common practice in India. However, it's important to handle this process with care to ensure compliance with the Payment of Gratuity Act, 1972.
1. The Payment of Gratuity Act, 1972 does not explicitly prohibit the inclusion of gratuity in the CTC. However, implementing this change retrospectively could potentially lead to legal complications. It's generally advisable to avoid making changes to employment terms retrospectively unless there is a clear provision for it in the employment contract or company policy.
2. To implement this change prospectively, you should issue revised appointment letters to your employees detailing the new CTC structure. This should clearly state the inclusion of the 4.81% gratuity contribution in the CTC. It's advisable to consult with a labor law expert or attorney to ensure the revised terms are in compliance with all applicable laws.
3. While the law does not explicitly require employee consent for changes to the CTC structure, it's considered good practice to communicate any such changes to employees in advance and obtain their consent. This can help avoid potential disputes and maintain a positive employer-employee relationship.
Remember, any changes to the CTC structure should be fair, transparent, and in compliance with all applicable laws. It's also important to communicate these changes effectively to your employees to ensure they understand the impact on their take-home pay.
From India, Gurugram
Acknowledge(0)Amend(0)
1. The Payment of Gratuity Act, 1972 does not explicitly prohibit the inclusion of gratuity in the CTC. However, implementing this change retrospectively could potentially lead to legal complications. It's generally advisable to avoid making changes to employment terms retrospectively unless there is a clear provision for it in the employment contract or company policy.
2. To implement this change prospectively, you should issue revised appointment letters to your employees detailing the new CTC structure. This should clearly state the inclusion of the 4.81% gratuity contribution in the CTC. It's advisable to consult with a labor law expert or attorney to ensure the revised terms are in compliance with all applicable laws.
3. While the law does not explicitly require employee consent for changes to the CTC structure, it's considered good practice to communicate any such changes to employees in advance and obtain their consent. This can help avoid potential disputes and maintain a positive employer-employee relationship.
Remember, any changes to the CTC structure should be fair, transparent, and in compliance with all applicable laws. It's also important to communicate these changes effectively to your employees to ensure they understand the impact on their take-home pay.
From India, Gurugram
Acknowledge(0)Amend(0)
Gratuity is a mandatory part of CTC.And Gratuity Act mandates it's inclusion in CTC from the day one of joining of employee.
It should not have any impact on salary of employees as Gratuity is an entitlement that applies after Five years of continuous service.
Any changes however in CTC should be informed to employees.
From India, Vadodara
Acknowledge(1)
Amend(0)
It should not have any impact on salary of employees as Gratuity is an entitlement that applies after Five years of continuous service.
Any changes however in CTC should be informed to employees.
From India, Vadodara
Acknowledge(1)Amend(0)
If I have understood your question correctly, I presume that your Management is reducing the Gratuity element of 4.81% from the already announced CTC package. This will mean that the employee will receive a take home pay, which will be 4.81% less than what was announced earlier.
In my opinion, if my assumption is right, reduction of pay package with retrospective effect will also mean recovery of 4.81% from their already received pay package. This may not be right from HR perspective.
Try to convince your management that this 4.81% may be adjusted in the future pay revisions announced by the management and avoid effecting retrospective Gratuity adjustments as proposed now.
Regards
M.V.Kannan
From India, Madras
Acknowledge(1)Amend(0)
In my opinion, if my assumption is right, reduction of pay package with retrospective effect will also mean recovery of 4.81% from their already received pay package. This may not be right from HR perspective.
Try to convince your management that this 4.81% may be adjusted in the future pay revisions announced by the management and avoid effecting retrospective Gratuity adjustments as proposed now.
Regards
M.V.Kannan
From India, Madras
Acknowledge(1)Amend(0)
The Payment of Gratuity Act, 1972, mandates the inclusion of Gratuity in the Cost to Company (CTC) structure from the first day of an employee's joining. It is a type of social security benefit provided to employees who have completed at least five years of continuous service in an establishment that has ten or more employees.
As per your query, here are the answers:
1. The inclusion of Gratuity in the CTC structure retrospectively is a complex legal matter. While there is no explicit provision in the Payment of Gratuity Act, 1972, prohibiting such retrospective changes, it could potentially be challenged by employees as it impacts their take-home salary. Therefore, it would be prudent to seek legal advice on this matter.
2. The correct procedure to include Gratuity in the CTC structure would be to inform the employees about the change in a transparent manner. This can be done by issuing revised appointment letters detailing the new CTC structure. It is also recommended to hold a meeting or an informational session to explain the changes and address any concerns that the employees may have.
3. While the Act doesn't explicitly mention the need for employee consent for changes in the CTC structure, it is generally considered good HR practice to seek employee consent for any changes that impact their salary. This can help prevent any potential disputes or legal issues in the future.
It's important to remember that any changes in the CTC structure should be in compliance with all relevant labour laws and regulations. You can refer to the Payment of Gratuity Act, 1972, for more information on this topic http://www.labour.nic.in/act/payment-gratuity-act-1972.
Please note that this advice is based on general principles of HR management and labour law, and may not apply to specific situations or jurisdictions. Always consult with a qualified HR professional or legal expert in your area to ensure compliance with all applicable laws and regulations.
From India, Gurugram
Acknowledge(0)Amend(0)
As per your query, here are the answers:
1. The inclusion of Gratuity in the CTC structure retrospectively is a complex legal matter. While there is no explicit provision in the Payment of Gratuity Act, 1972, prohibiting such retrospective changes, it could potentially be challenged by employees as it impacts their take-home salary. Therefore, it would be prudent to seek legal advice on this matter.
2. The correct procedure to include Gratuity in the CTC structure would be to inform the employees about the change in a transparent manner. This can be done by issuing revised appointment letters detailing the new CTC structure. It is also recommended to hold a meeting or an informational session to explain the changes and address any concerns that the employees may have.
3. While the Act doesn't explicitly mention the need for employee consent for changes in the CTC structure, it is generally considered good HR practice to seek employee consent for any changes that impact their salary. This can help prevent any potential disputes or legal issues in the future.
It's important to remember that any changes in the CTC structure should be in compliance with all relevant labour laws and regulations. You can refer to the Payment of Gratuity Act, 1972, for more information on this topic http://www.labour.nic.in/act/payment-gratuity-act-1972.
Please note that this advice is based on general principles of HR management and labour law, and may not apply to specific situations or jurisdictions. Always consult with a qualified HR professional or legal expert in your area to ensure compliance with all applicable laws and regulations.
From India, Gurugram
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Legal Compliance Plan.xls
CiteHR.AI
(Fact Checked)-Your understanding is correct. Retrospective reduction in CTC isn't permissible under Indian labor laws. Future adjustments are a more compliant approach. (1 Acknowledge point)