Hi,
I have one query about gratuity. Some companies deduct the gratuity amount monthly from employee salaries. What happens if an employee leaves the company after two years and joins another company? What happens if an employee retires after three years working in the same company? As per my knowledge, they will not be eligible as per the Payment of Gratuity Act. Then what happens to the deducted amount for two or three years? Can the employee legally receive it, or is it at the company's discretion to give it or not? Please advise me in detail as I have a big confusion about this issue in gratuity.
Thanks & Regards, Parul ERP HR & Payroll Consultant
From India, Vadodara
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8I have one query about gratuity. Some companies deduct the gratuity amount monthly from employee salaries. What happens if an employee leaves the company after two years and joins another company? What happens if an employee retires after three years working in the same company? As per my knowledge, they will not be eligible as per the Payment of Gratuity Act. Then what happens to the deducted amount for two or three years? Can the employee legally receive it, or is it at the company's discretion to give it or not? Please advise me in detail as I have a big confusion about this issue in gratuity.
Thanks & Regards, Parul ERP HR & Payroll Consultant
From India, Vadodara
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Hi Parul,
As per the statute, the employer needs to make a provision of 4.81% of the amount on the basic pay. If an employee resigns and leaves the organization before the stipulated period, i.e., 4 years and 240 days, then they will not be eligible for gratuity payment.
Ramesh
From India, Mumbai
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As per the statute, the employer needs to make a provision of 4.81% of the amount on the basic pay. If an employee resigns and leaves the organization before the stipulated period, i.e., 4 years and 240 days, then they will not be eligible for gratuity payment.
Ramesh
From India, Mumbai
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Mr. Babu,
No statute says that an employer has to make a provision of 4.81% of the basic for gratuity. You may be guided by Sec. 4-A of the POG Act, but that is not yet implemented by the Government of India. One more thing, gratuity is not paid on basic alone. Dearness allowance (DA) is also considered if paid.
Varghese Mathew
9961266966
From India, Thiruvananthapuram
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No statute says that an employer has to make a provision of 4.81% of the basic for gratuity. You may be guided by Sec. 4-A of the POG Act, but that is not yet implemented by the Government of India. One more thing, gratuity is not paid on basic alone. Dearness allowance (DA) is also considered if paid.
Varghese Mathew
9961266966
From India, Thiruvananthapuram
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Dear member,
The employer has no right to deduct the applicable Gratuity Amount from the employee's salary. Gratuity is payable to an employee by the employer once he/she completes 5 years of continued employment. Normally, the employer reflects 4.8% of Basic + DA amount of the employee as the Gratuity amount while calculating his/her yearly/monthly CTC. Many companies consider Gratuity, PF (Employer), ESIC, Medical Insurance, Life Insurance, Bonus, etc., towards the calculation for the employee's CTC. Nevertheless, Gratuity amount cannot be deducted from the employee's salary, as it is a facility provided by many employers for the purpose of the employee's continued services with them.
Thanks & Regards,
Vijayan K
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The employer has no right to deduct the applicable Gratuity Amount from the employee's salary. Gratuity is payable to an employee by the employer once he/she completes 5 years of continued employment. Normally, the employer reflects 4.8% of Basic + DA amount of the employee as the Gratuity amount while calculating his/her yearly/monthly CTC. Many companies consider Gratuity, PF (Employer), ESIC, Medical Insurance, Life Insurance, Bonus, etc., towards the calculation for the employee's CTC. Nevertheless, Gratuity amount cannot be deducted from the employee's salary, as it is a facility provided by many employers for the purpose of the employee's continued services with them.
Thanks & Regards,
Vijayan K
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Dear Parul,
As many members pointed out, it is wrong and illegal to deduct gratuity contributions from the salary of the employee. Gratuity is a contribution from the employer to the employee to be paid when the employee leaves (due to resignation, death, or termination) the employer, once they become eligible for gratuity payment under the Act.
"Unless the employee's payroll is calculated based on the CTC pattern, where all 'Cost to Company' components are indicated, and thus a proportional gratuity could be shown as a deduction..." I don't believe any employer shows all the components of CTC on the payroll slip.
An employee becomes eligible to receive gratuity after completing 4 years and 240 days of 'continuous service.' Therefore, for services with less than 4 years and 240 days, the employee is not eligible for gratuity payment, and the contribution made on their behalf is forfeited and reverts to the employer's kitty. Additionally, the gratuity corpus does not distribute accrued interest to employees like EPF.
Regarding retiring after serving for 3 years - how is that possible? Did the employee serve elsewhere for the rest of the period? Your query is unclear. However, the requirement of 4 years plus 240 days of service is strict, except in cases of death, permanent disablement, firm closure, etc.
Unlike EPF and EPS, which can be paid or transferred to the next employer, gratuity cannot be transferred to the next employer, except in the case of Government and PSU sectors where gratuity can be transferred to the next employer by mutual consent, remitting the equivalent amount like EPF, with or without accrued interest.
Are you clear, friend?
Kumar S.
From India, Bangalore
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As many members pointed out, it is wrong and illegal to deduct gratuity contributions from the salary of the employee. Gratuity is a contribution from the employer to the employee to be paid when the employee leaves (due to resignation, death, or termination) the employer, once they become eligible for gratuity payment under the Act.
"Unless the employee's payroll is calculated based on the CTC pattern, where all 'Cost to Company' components are indicated, and thus a proportional gratuity could be shown as a deduction..." I don't believe any employer shows all the components of CTC on the payroll slip.
An employee becomes eligible to receive gratuity after completing 4 years and 240 days of 'continuous service.' Therefore, for services with less than 4 years and 240 days, the employee is not eligible for gratuity payment, and the contribution made on their behalf is forfeited and reverts to the employer's kitty. Additionally, the gratuity corpus does not distribute accrued interest to employees like EPF.
Regarding retiring after serving for 3 years - how is that possible? Did the employee serve elsewhere for the rest of the period? Your query is unclear. However, the requirement of 4 years plus 240 days of service is strict, except in cases of death, permanent disablement, firm closure, etc.
Unlike EPF and EPS, which can be paid or transferred to the next employer, gratuity cannot be transferred to the next employer, except in the case of Government and PSU sectors where gratuity can be transferred to the next employer by mutual consent, remitting the equivalent amount like EPF, with or without accrued interest.
Are you clear, friend?
Kumar S.
From India, Bangalore
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Hi!
Just needed to know - if a company is paying gratuity to an employee at the point of retirement, are they also supposed to encash balance leave? I had understood it as 'no' but want to be sure before I advise management.
Thanks,
Menon
From India, Mumbai
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Just needed to know - if a company is paying gratuity to an employee at the point of retirement, are they also supposed to encash balance leave? I had understood it as 'no' but want to be sure before I advise management.
Thanks,
Menon
From India, Mumbai
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Yes if your Co is a factory.If not it depends on Co policy. Varghese Mathew
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Thank you, Varghese. Mine is a school, and I also wanted to check if it matters what cadre the employee is. The person in question is a lady peon (Class IV employee), and we would like to ensure she gets what she deserves.
menon
From India, Mumbai
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menon
From India, Mumbai
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She is eligible for Gratuity as per POG Act.Encashment depends on policy.It is better to encash she has unavailed leave. Varghese Mathew
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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