Dear Seniors, If an employee is taking 160,000 rupees per month, what would be his gratuity amount after 5 years as per the Delhi State regulations? Additionally, if we maintain his basic salary at 25,000 as required by the Minimum Wages Act in Delhi, should the calculation be based on 25,000 or 50% of 160,000? Please advise on the correct approach.
Thanks
From India, New Delhi
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From India, New Delhi
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Hi, Gratuity can be calculated on the last drawn Basic (+ DA if applicable). Last drawn Basic x 15/26 x number of years completed.
From India, Madras
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1015From India, Madras
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Gratuity and Basic Salary Considerations
Gratuity is based on basic salary and Dearness Allowance (DA). You are keeping DA at 15% of the gross salary. This is why the government is implementing a minimum basic salary in the new wage code and other labor laws.
At the moment, there is nothing wrong with your current working setup, although I believe it may make your company less attractive to prospective employees.
From India, Mumbai
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Gratuity is based on basic salary and Dearness Allowance (DA). You are keeping DA at 15% of the gross salary. This is why the government is implementing a minimum basic salary in the new wage code and other labor laws.
At the moment, there is nothing wrong with your current working setup, although I believe it may make your company less attractive to prospective employees.
From India, Mumbai
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If the Basic + DA = 25,000/- After completion of 5 years service - 25,000x15x5/26 = 72,115/-
From India
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From India
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Understanding Gratuity Calculation Under the Payment of Gratuity Act
Under the Payment of Gratuity Act, there is no mention of Basic Salary. The wages/salary as per the Act shall include all emoluments that are payable to an employee as per the contract of employment. The only exclusions are: Overtime allowance, Bonus, House Rent Allowance, Commission, and other allowances.
Components Excluded from Gratuity Computation
A perusal of the above will make it clear that allowances which are not fixed and quantified in the appointment order/contract of employment are the components that can be excluded from the computation of gratuity. Of these, HRA is the amount which will often be confused, and legally, HRA is payable only to those who reside in leased accommodation. It is payable only under the condition that the spouse is not in receipt of the same. If this component is available to all employees, it will be termed as an allowance universally paid to all employees, and then it will be part of the salary for the purpose of computation of gratuity.
For more details, please follow the link below:
https://madhu-t-k.blogspot.com/2024/...lary-some.html
The above observations are made by me based on my own experience. You can have a different opinion. In an establishment where an old system of payroll management exists, the wages should mean only Basic wage and Dearness allowance. But in the CTC era, it should require a change. I don't think that if a person takes one day LOP (leave without Pay), his HRA will be paid in full, which establishes that HRA is part of remuneration only. In order to be called an allowance excluded from the scope of wages, it should be a 'compensatory' allowance, an allowance to compensate a cost.
From India, Kannur
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Under the Payment of Gratuity Act, there is no mention of Basic Salary. The wages/salary as per the Act shall include all emoluments that are payable to an employee as per the contract of employment. The only exclusions are: Overtime allowance, Bonus, House Rent Allowance, Commission, and other allowances.
Components Excluded from Gratuity Computation
A perusal of the above will make it clear that allowances which are not fixed and quantified in the appointment order/contract of employment are the components that can be excluded from the computation of gratuity. Of these, HRA is the amount which will often be confused, and legally, HRA is payable only to those who reside in leased accommodation. It is payable only under the condition that the spouse is not in receipt of the same. If this component is available to all employees, it will be termed as an allowance universally paid to all employees, and then it will be part of the salary for the purpose of computation of gratuity.
For more details, please follow the link below:
https://madhu-t-k.blogspot.com/2024/...lary-some.html
The above observations are made by me based on my own experience. You can have a different opinion. In an establishment where an old system of payroll management exists, the wages should mean only Basic wage and Dearness allowance. But in the CTC era, it should require a change. I don't think that if a person takes one day LOP (leave without Pay), his HRA will be paid in full, which establishes that HRA is part of remuneration only. In order to be called an allowance excluded from the scope of wages, it should be a 'compensatory' allowance, an allowance to compensate a cost.
From India, Kannur
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Out of Rs. 1,60,000/- per month, as per the new Code on Wages, you cannot keep the basic salary as Rs. 25,000/-. The new definition reads as follows in the Code on Wages:
Definition of Wages
Sec. 2 (y): “Wages”:
Wages mean all remuneration capable of being expressed in terms of money payable to a person employed and include (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.
There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).
Clause 2(y): “Wages”
“Wages means all remuneration capable of being expressed in terms of money payable to a person employed and includes (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.
There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).
If the excluded amount (Clauses “a” to “i”) exceeds 50% of the total remuneration payable (second part), then the amount which exceeds one half (or any other percentage as fixed by the Appropriate Govt) of the said total remuneration shall be deemed as Wages (first part) under the new Code. Hence, it is very difficult for organizations to keep the basic wages very low in the coming years as it is being done at present. More than that, my personal opinion is organizations should not worry much about paying gratuity because if someone is working for 5 years, it is a good thing in the present scenario and they should definitely be rewarded for their long service.
From India, Chennai
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Definition of Wages
Sec. 2 (y): “Wages”:
Wages mean all remuneration capable of being expressed in terms of money payable to a person employed and include (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.
There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).
Clause 2(y): “Wages”
“Wages means all remuneration capable of being expressed in terms of money payable to a person employed and includes (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.
There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).
If the excluded amount (Clauses “a” to “i”) exceeds 50% of the total remuneration payable (second part), then the amount which exceeds one half (or any other percentage as fixed by the Appropriate Govt) of the said total remuneration shall be deemed as Wages (first part) under the new Code. Hence, it is very difficult for organizations to keep the basic wages very low in the coming years as it is being done at present. More than that, my personal opinion is organizations should not worry much about paying gratuity because if someone is working for 5 years, it is a good thing in the present scenario and they should definitely be rewarded for their long service.
From India, Chennai
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Complexities in the New Wage Code
The basic wages under the new code are just a joke. If an employee works overtime or earns a commission in the last month, their gratuity would also increase! We already had definitions of wages that were more or less the same under all the Acts, and now the Code, which aimed to simplify the laws, has made it more complicated. It has not directly stated that 50% of the total remuneration will be the basic wage but includes a lot of allowances and a final calculation as well. Even the employer's contribution to PF is considered an allowance under the new system. In an undertaking where the PF is contributed without a ceiling of Rs 15,000, determining the monthly contributions to PF becomes very difficult.
From India, Kannur
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The basic wages under the new code are just a joke. If an employee works overtime or earns a commission in the last month, their gratuity would also increase! We already had definitions of wages that were more or less the same under all the Acts, and now the Code, which aimed to simplify the laws, has made it more complicated. It has not directly stated that 50% of the total remuneration will be the basic wage but includes a lot of allowances and a final calculation as well. Even the employer's contribution to PF is considered an allowance under the new system. In an undertaking where the PF is contributed without a ceiling of Rs 15,000, determining the monthly contributions to PF becomes very difficult.
From India, Kannur
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LEAVE ENCASHMENT NOT INCLUDED IN WAGES FOR P. F. CALCULATION.pdf
Method of calculation of wages.doc