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As per The Payment of Gratuity Act, 1972, Gratuity is an award which an employer pays out of his gratitude, to an employee for his long and meritorious services, at the time of his retirement, or termination of his services. Payment of gratuity is, however, compulsory for employers, subject to eligibility mentioned in the legislation. One of the compulsory eligibility is – “Continuous Service of FIVE Years”.

By definition, Total Cost to Company (TCTC) means total amount payable to an employee or on behalf of employee, directly or indirectly, in a year. Hence, among all other heads, TCTC includes contribution towards Provident Fund (PF), contribution towards Employees’ State Insurance, payment of bonus, variable component of TCTC (performance linked bonus, if bonus), and contribution towards any other benefits payable to an employee in a year.

Hence, deduction towards Payment of Gratuity is legal or illegal? Gratuity becomes payable, if and only if, an employee completes FIVE years of continuous service with organization. If an employee leaves the organization within FIVE years of joining, he is not paid the Gratuity Amount, even though the amount has been deducted from his CTC and kept aside.

Do you think deduction made from the TCTC of an employee towards payment of gratuity, is legal or illegal? Is it ethical?

You can share your thoughts…

From India, Mumbai
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Mahr
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Hi Sanjeev, It is not illegal to include Gratuity in the CTC, as it is an actual cost to the company. Many companies take insurance for Gratuity as well.
From India, Bangalore
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There is nothing wrong in including gratuity in the CTC, that an employer can include anything in it including the cost of tea and coffee that an employee will have during office hours, the cost of uniforms that is given and each and every rupee that he spends for the employee. But what is wrong is the purpose or idea behind showing the cost of service of an employee as cost to the company as against the salary cost. This is just to attract people and lure them to accept the offers given by the employer. The employer can put any amount as variable pay and say that if you perform you can earn it, knowing that it is unreasonable and cannot be achieved at all. But the candidate who sells his service would accept it thinking that it is available to him either as part of monthly salary or is easily achievable. Everything goes wrong when time passes.

Gratuity is a real payment but is payable depending upon certain conditions, ie, continuous service of 5 years and the last drawn salary. If these conditions are mentioned, there is no illegality in including the amount in the CTC. But it is not to be deducted from the salary but is paid subject to the above mentioned conditions. I dont think that any company will show this as deduction from the salary in the pay slips. If so, claim it as unauthorized deduction and get the amount refunded immediately.

I do not personally favour the practice of CTC. In my opinion, the price that the employer will pay for the services that each employee gives should be equal to the benefits that the employer gets from these services of the employee. That is why we often ask in a job interview, why should we hire you?, which implies, what benefits would we get from hiring you?. This was ironically expressed by me long back, when the concept of CTC was in its inception stage, which figured to say CTC should be renamed as Benits to Company or BTC. Please follow the link below also.

Madhu.T.K: CTC Vs BTC

Madhu.T.K

From India, Kannur
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Hi Friends....I have 8 Yrs of HR experience. Lets share and make HR as successfull for organisation as well as employees.
From India, Hyderabad
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Good point for discussion to include Gratuity in Annual CTC offered to new joiner.

Whenever CTC is mentioned, it is annual, i.e., an employee will get the amount for serving the company for one year. Some amounts are not paid annually. Gratuity amount is one of them, which is paid after serving 5 years and on separation. They claim that this is part of my annual earnings and as such pay me. Their claim seems to be correct and becomes difficult to explain and understand them.

So, I would favor that CTC should have only those parts that are actually to be incurred on a candidate during one year. All benefits available to the candidates on separation should be mentioned separately with terms & conditions applicable. However, we can add other benefits like leaves, etc. A separate condition of Payment of Gratuity after 5 years' service can help to bind the candidate after serving the company for 2-3 years.

From India, Panipat
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DEAR ALL If the gratuity is considered as CTC than my question is if the employee left service before completion of 5 YRs than he will be eligible for gratuity which is included in CTC?
From India, Mumbai
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One more doubt on the payment of Gratuity to the employee. Nowadays, some companies are engaging retired officials in employment with a designated term basis. The term basis employment is extended periodically, and the employee happens to be in employment for more than 5 years, fulfilling the service requirements as per the Gratuity Act. Do retired employees deployed by companies for more than 5 years have the right to claim Gratuity if their employment term is extended periodically without any gaps in service?
From India, Mumbai
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I am trying to address the query of Sanjeev Himachali, the original querist.

It is fine if the employer includes gratuity in the CTC. However, it is contingent upon completing 5 years of service. Therefore, if an employee leaves without completing 5 years, the employer should pay the equivalent amount of gratuity due to the employee for the number of years served (gratuity is shown as part of CTC in the last increment letter).

Since it is not gratuity but rather a part of the cost to the company and also a component of the employee's salary, the employee may be taxed at the appropriate rate.

A S Bhat

From India, Pune
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As regards the second query posted by Mr. Shridharan Venkatraman, generally, retired employees are asked to serve again on a contract basis, against a lump-sum consideration. Such contracts are renewable at the discretion of the employer and are not termed as regular appointments of an employee. Usual appointment letters and contract formats differ in terms and conditions. In such cases, employee benefits like gratuity or PF will not be applicable.

However, if the terms of engagement take on a character establishing an employer-employee relationship, then certainly gratuity will be payable if the previously retired employee works for more than five years. I look forward to receiving more reactions to this from experts in the field.

A S Bhat

From India, Pune
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Cost to Company (CTC) is the salary package of an employee. It indicates the total amount of expense an employer (organization) is spending for an employee in a year. CTC is not the actual salary of an employee; it also includes all the facilities an employee is getting during the service period.

Like Gratuity, many companies also include Mediclaim in the CTC. An employee is covered by the Mediclaim only until the time he is employed in the company. Therefore, if he leaves in between, the company should repay him the balance Mediclaim amount as he is not using the same anymore.

Similarly, Variable Pay is also included (with a rider); this is payable only on certain achievements by the self and the company.

Including Gratuity is also permissible (with a rider). There is nothing illegal or unethical in the same.

Regards, Ashutosh Thakre

From India, Mumbai
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Probably the concept of CTC would have emanated from a stipulation under the Accounting Standards of ICAI that all costs of employees should be accounted on an accrual basis, whether paid or payable later. That's why gratuity, like other annual costs on an accrual basis, is accounted for in every year's accounts of an establishment to arrive at the Profit or Loss of the establishment at any point in time. Therefore, gratuity, together with contributions to PF, ESI, cost of leave accrued, LTA, insurance, other allowances, perquisites, and other employee-related benefits, etc., are bracketed under the CTC. Thus, gratuity in CTC is inclusive.

However, the stipulation that those who complete 5 years of continuous service are only eligible to receive should be done away with for the simple reason that gratuity accrued has already been earned by the employee and therefore accounted for by the employer year after year, and must be converted as "due & payable as and when he/she leaves" like leave balance encashable. Denying gratuity to those who fall short of 5 years of service gives undue advantage/enrichment to the employer because it was already charged in the accounts but only written back in the year of leaving by an overall adjustment/arriving at incremental liability.

Therefore, gratuity can be considered under CTC but subject to actual payment/disbursement only to become legal. Who will bell the cat?

From India, Bangalore
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nathrao
3180

Once people understand that CTC (Cost to Company) is the sum of all rewards and benefits which a company provides to the employee, all direct benefits (e.g., salary, DA) and indirect benefits (e.g., interest loans, Sodexo coupons, and savings contributions such as Gratuity, EPF) will be included. Gratuity will be paid if due after 5 years of continuous service; the company includes the expense in CTC. There is nothing wrong with that. As long as one realizes that their take-home pay will be lower than CTC, no confusion will arise.
From India, Pune
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The government is in any way proposing that like PF, the Gratuity can also be transferred to the new company and continuous service, i.e., without a break in service, will be the norm.

If the above proposal gets implemented, then the question automatically gets answered.

Regards,
Ashutosh Thakre

From India, Mumbai
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I dont know whether the government has proposed like what Ashuthosh has said. The Govt. can propose anything without understanding the consequences. They want only votes and not welfare of people and therefore can announce anything before any general election.

I dont think that this will be practical when the private sector employers are independent. In respect of an employee who leaves the service of an employer after 3 years he has no gratuity liability as such but the employer who hires this employee will be shouldering an unwanted burden of 3 years retrospective liability and he would be forced to pay gratuity if this person leaves him in just two years. This is not at all practical. Even in the case where section 4A is made mandatory and all state governments notify that gratuity fund is invested in LIC, it is not going to work because establishment who invests gratuity in LICs separate fund would be interested to get the unused funds of those who leave the company adjusted against its future instalments and would not be ready to let it go to another employer along with employees who leave. Therefore, the proposal would not work in our present scenario.

Madhu.T.K

From India, Kannur
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Dear Madhu,

I fully appreciate your apprehension and statement, "In respect of an employee who leaves the service of an employer after 3 years he has no gratuity liability as such but the employer who hires this employee will be shouldering an unwanted burden of 3 years retrospective liability and he would be forced to pay gratuity if this person leaves him in just two years. This is not at all practical," but only when the Government proposes to share the burden of one organisation by the other. In that case, the industry, itself, would take up the cudgels against the Government to vehently oppose the move, as no organisation would like to pay from its own resources for the other.

But, probably, you seem to have misconceived the statement of Mr. Ashutosh Thakre. Mr. Ashutosh Thakre has stated, "the Gratuity also can be transferred to the new company and continuous service, i.e. without break in service will be the norm." I don't know the basis on which Mr. Thakre has stated so, but the sense of his statement does not seem to subscribe to the transfer of liability. What I understand is that the gratuity amount may be proposed to be transfered from one organisation to another on joining new organisation. So, the issue can be expected to be clear only after seeing the Government proposal.

From India, Delhi
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Dear Ashutosh,

To avoid misunderstanding and misconception in the minds of the members/industry, it would be better if you please intimate the source of your information, along with its web link, to enable the members to go through the proposal and form their viewpoints based on the spirit of the proposal in its right perspective, rather than assume anything in the absence of the proposal.

From India, Delhi
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Dear All,

Kindly find the link based upon which I had said that the government is proposing to transfer the Gratuity like PF: [Labour law recast to add more leave to maternity, gratuity to be made portable - timesofindia-economictimes](http://articles.economictimes.indiatimes.com/2015-07-22/news/64725944_1_gratuity-act-maternity-leave-gratuity-benefits)

Regards,
Ashutosh Thakre

From India, Mumbai
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Organizations can include gratuity as a retirement benefit in the CTC. In this way, it is clear that an employee can only avail of gratuity upon retirement or if they leave the organization after completing 5 years of service.
From India, Pune
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Transfer of gratuity from one establishment to another is already in vogue in Govt./Quasi-Govt./PSUs where employees migrate from one to the other with mutual consent/prior arrangement. Of course, these are not covered under the Gratuity Act but under their own Gratuity Rules. Likewise, leave at credit, the equivalent of which is also transferred by remitting the cash equivalent from the transferring establishment to the transferee establishment. Of course, in these cases, there is no 5-year stipulation as in the Act.

I think there is no ban if these arrangements are put into practice in other sectors also if both parties agree for the benefit of employees involved. The fears of additional burden if and when implemented are only a misnomer as year-on-year gratuity contributions are already loaded in the accounts and therefore there won't be any additional burden whatsoever. If I'm right, even under the Act, there is a restriction to disburse to those <5 years but not transferring the past service. The only missing link will be how to address if at all there arises a break in-between.

From India, Bangalore
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I just want to know that leave is mandate in service industry speciall manufacturing. If yes then is there any statement which clarify the same that leave is mandate.
From India, Delhi
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Once the package includes the Gratuity as an indirect benefit of wage component, it is the duty of the employer to pay Gratuity to the employee irrespective of the compliance of the required service of completion of 5 years of service as per the Act. (Since the employer himself has the commitment to pay Gratuity from day one of the employee's service via the package issued to the employee). Is my understanding correct???
From India, Mumbai
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nathrao
3180

"Is my understanding correct?"
Sridhar, your understanding is incorrect. Gratuity will be paid only if the employee fulfills minimum conditions like 5 years of continuous service. The fact that gratuity is included in CTC is only an accounting understanding. After the due period of service, this amount will be due to be paid by the company upon the exit of the employee.

From India, Pune
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From India, Bangalore
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Dear Sanjeev,

By the term "CTC" we should not restrict our imagination merely on point of view of the HR. CTC (cost to company), as the term reveals is an accounts & finance term that intends to denote commercial accounting of transactions made with reference to the staff & establish matters, rather than any HR activity. For the purpose of HR, the terms of salary, wages, pay & allowances and the emoluments can well be used. The CTC in a company denotes commercial vallues for the purpose of accounting, as the company has to maintain its accounts on commercial pattern for arriving at the true results of profit & loss and assets & liability after shouldering its likely liabilities during and/or after the service period of the employees.

So, with reference to your assumption and question, "deduction towards Payment of Gratuity is legal or illegal? Gratuity becomes payable, if and only if, an employee completes FIVE years of continuous service with organization. If an employee leaves the organization within FIVE years of joining, he is not paid the Gratuity Amount, even though the amount has been deducted from his CTC and kept aside. Do you think deduction made from the TCTC of an employee towards payment of gratuity, is legal or illegal? Is it ethical," I would like to say that gratuity element in CTC is not a deduction, rather a held up amount to show liability that the company has to evenually bear in making payment after the employee actually becomes eligible, as per the law of the land. The said liability gets included every year in the annual accounts of the company to arrive at the true position of its profit and loss on commerical accounting pattern for the purpose of information to its stake holders and the share holders, so that the burden may not affect its revenue and profits in lump in the year of payment. In other words, that is just to facilitate smooth sailing of their funding position and to reveal the real financial health of the company from year to year basis.

So, the question of ethics, legality or deduction of gratuity does not arise when it is concerned with the HR functions or the salary/ wages of the employees, as that denotes a presumptive nominal value for the purpose of funding the operations of the company and to bear when becomes due to be paid. However, if that does not become due to the employee due to his ineligibility that remains as part and parcel of the profits & losses of the company that alsready stand incorporated in the books of accounts of the company.

So, it is quite legal and has no illegality or against ethics. Rather that helps the employee to show his real worth when applying for another job elsewhere.

From India, Delhi
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From India, Bangalore
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As I know, Annual CTC is not a legal term. It is designed by companies to attract and allure new joiners. Therefore, companies go on adding any type of expenditure like gratuity, which is payable upon separation after 5 years of continuous service. At the start of the job, no tenure of separation can be decided. Hence, how can we say this is expenditure or accrued expenditure.

I may inform that only actual expenditure incurred is booked in the books. If any amount is booked in books on an accrual basis, the same is to be released to the concerned person/party before filing the ITR. Hence, no part of the CTC is booked in the books of accounts other than actual or accrual. If we examine from an income tax perspective, how can an amount be booked for which tenure or limit is not decided. Please note that gratuity is to be calculated based on the last pay drawn.

From India, Panipat
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Nathrao ji, Thanks for your appreciation and endorsing my views, "Rather that helps the employee to show his real worth when applying for another job elsewhere."
From India, Delhi
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From India, Delhi
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Dear Shri Gupta,

If CTC is not legal in any way, it would be nice on your part to quote some section of the Act according to which that is illegal. That may not only enrich my knowledge but also enlighten all other members of the forum.

For your kind information, CTC has nothing to do with the Payment of Gratuity Act. So, you cannot expect any mention of the term "CTC" in the law pertaining to the Payment of Gratuity. The Act deals with the entitlement of the employees for the payment of gratuity and the penal provisions for violation of the law. Had the CTC been linked to the Payment of Gratuity Act, that would have definitely defined the term CTC and the penal provisions if the CTC would have been illegal in any manner. So, there is no use in raising any controversy about the accounting term "CTC" vis-a-vis the provisions of the Payment of Gratuity Act.

We must understand that both the HR and Accounting functions of any commercial organisation are quite distinct. While the Accounting department cannot raise any finger on the decision of the HR in payment or forfeiture of gratuity, the HR cannot interfere in the functioning and principles of accounting transactions by the Accounts Department.

From India, Delhi
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Dear Sridharan,

By your statement, do you really mean that the employer becomes duty-bound to pay the gratuity even if that violates the law of the land on the payment of gratuity, if the employer has included the element of gratuity in the CTC of an employee, and also that to discharge the so-called duty the employer is totally free to violate any law of the land?

If so, would you please like to quote the appropriate section of the relevant law on that issue? That may help me enhance my knowledge, including that of other members of the forum.

From India, Delhi
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I humbly disagree with some of the experts here (some have already disagreed like me, in this thread). Payment of gratuity may be illegal if the employee has not completed 5 years of continuous service, but having committed to treat it as part of the employee cost to company, is it not correct to expect the employer to refund the cost so committed by him through the appointment letter, even by calling it something else? After all, he has committed it through the appointment letter. I have even come across a case where the gratuity was paid after completion of even 4 years because it was included in CTC. He may make it subject to income tax though.

Further, please enlighten me if the gratuity act expressly bars payment of gratuity when the employee does not complete 5 years. True, it makes the employer duty-bound to make the payment after 5 years of service. Which section bars it without completion of 5 years in case the employer still wants to pay it? - A S Bhat

From India, Pune
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To my knowledge, no deductions are made from employees' salaries by any employer. This component is only shown or included in the CTC to the extent of eligibility every year to project the sum of the annual cost of every employee to the Company on an accrual basis. Gratuity is neither payable on a monthly basis nor an annual basis like salary. If somebody is deducting from the salary, it's illegal.
From India, Bangalore
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Isn't it illegal if any employer chooses to pay gratuity to employees even if they didn't complete 5 years of continuous service? I think it's not so. Definitely, there is NO BAR. It would be fair enough and appreciated if some employer pays gratuity for <5 years of service as mentioned. Of course, claiming a deduction under the IT act is a different matter.
From India, Bangalore
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From India, Bangalore
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There is no law that bans the employer from paying anything before the completion of the period or, in other words, more than what is mentioned in the law. The only difference is how can you legally say that the employer needs to pay the same compulsorily? There are many employers who abide by the law. So, the payment of Gratuity to be paid before 5 years is completely an individual company's decision. The law states that it must be paid upon continuous completion of the 5 years of service.

Also, no law states that what is mentioned in the CTC needs to be paid. If that were the case, many employers would include performance pay in the CTC and pay only as per the calculation (the actual amount paid is much lower). So, similarly to Gratuity, the employers need to pay the PP as mentioned in the CTC and not otherwise. Differences of opinion will exist, as it is just how the company looks at the bottom line.

Regards, Ashutosh Thakre

From India, Mumbai
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Hai The Company is paying gratuity after completion of five years to their staffs. So the gratuity amount is shown in the CTC by the Employer.
From India, Coimbatore
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Dear Shri Bhat,

An appointment letter cannot supersede the provisions of the law of the land. If you or any aggrieved employee believes that the gratuity element, if included in the appointment letter, can well approach the competent court of law even for experimental sake and should get a landmark judgment, if the courts agree that the appointment letter can supersede the provisions of the law. If that happens, that can also prove beneficial to other employees in the industry.

From India, Delhi
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Hi Sanjeev, Thanks to raise the question in detail , i am also in confusion on this point while offering in CTC Concept. requesting you other senior members to clarify on this .
From India, Hyderabad
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No doubt, certainly it's payable once the reappointed/reengaged "employee" has put in a minimum of 5 years of continuous service on this fresh appointment based on his new salary (last pay drawn on leaving).
From India, Bangalore
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As per new amendment in gratuity act, if an employee has completed 4 years 240 days in his organisation then an employee is eligible for gratuity.
From India, Delhi
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Dear Mr. A. Thakare & Mr. Dhingra,

Once an appointment letter on CTC basis is accepted by the candidate and he joins the company, it becomes a contract enforceable by law (Contract Act). Performance pay that depends on a formula is difficult for management to manipulate, but when it is indicative, it can be subjective. Gratuity calculation included in CTC is not subjective but is capable of being calculated. My point is, if the CTC includes gratuity and an employee leaves in less than 5 years, then the employer should compensate him with a suitable amount for the loss of gratuity included in CTC. Failure to do so would be dishonest or unethical.

Filing a suit or not is the choice of the employee; considering the time taken and expenses involved, it showcases his weakness vis-a-vis fighting a stronger opponent.

Regards,
A S Bhat

From India, Pune
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Further if the employer has included a cost (in this case gratuity) in one’s appointment letter by way of CTC, he might as well incur instead of taking advantage of gratuity act - A S Bhat
From India, Pune
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Dear Mr. Dhingra,

It is true that no section in the Act requires the employer to pay gratuity to his employees for services rendered by them for less than 5 years. Such a brainstorming session on the CTC aspect would be a healthy discussion in this network among legal experts like you. Hence, this idea of mine is posted for discussion. Furthermore, when this matter comes to the attention of a court of law, I feel the court may take cognizance of this issue to arrive at a solution.

From India, Mumbai
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Dear All,

I disagree with the notion that employers take advantage of the act and do not pay gratuity. Also, there is nothing unethical or dishonest in that. Having the same included in the CTC is simply a clear way of showing that the employer is investing in the employee so that if he stays for more than 5 years, not only the employer but also the employee can enjoy the benefits of having stayed with the company long term. Paying gratuity after 5 years ensures that both parties have a win-win situation.

By stating that the payment is to be given, we are implying that the relationship between employee and employer is only legal and for a very short period.

Regards,
Ashutosh Thakre

From India, Mumbai
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Dear Mr. Dhingra,

"As I know, Annual CTC is not a legal term. It is designed by the companies to attract and allure the new joiners. Therefore, companies go on adding any type of expenditure like gratuity which is tenable on separation after 5 years of continuous service. At the start of the job, no tenure of separation can be decided. Hence, how can we say this is expenditure or accrued expenditure."

In the above lines/concept, I nowhere mentioned that this is an illegal concept but I wish to say that this is not a legislated concept but designed by the companies and accordingly the concept is not homogeneous in all companies.

Dear Mr. Thakre,

I refer to your latest post. I wish to point out that if an employee renders service for more than 5 years and gratuity is not mentioned in CTC, then his employer will not pay him gratuity?

From India, Panipat
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Dear Mr. Gupta,

Thank you for making that point. It's the other side of the coin, so if the employee completes 5 years and leaves the company, then can you say that the employee is taking benefit of the act for monetary gains? Likewise, why does the employer have to always take the blame that he is unethical for non-payment?

So, if it is mandatory for the employer to pay, even if it is not in the CTC as legally stated, then where is it legally stated that we need to pay it before the completion of the said period?

So, my point is, if the employee can hide behind the law, what's wrong if the employer does it.

Regards,
Ashutosh Thakre

From India, Mumbai
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Dear Mr. Thakre,

You will agree to my point that an Appointment Letter with CTC is enforceable under Civil Laws for all employees (For &lsquo;WORKMAN&rsquo; civil laws and ID Act, both options). Thus, all terms and conditions of the Appointment Letter, including CTC and gratuity, can be enforced through Civil Laws. Under Civil Laws, there are no terms and conditions for gratuity payment; rather, it can be enforced as per the Appointment Letter, and PGA cannot be enforced through civil laws. Gratuity payment can also be implemented through PGA, which in itself is a complete code. In my opinion, by mentioning Gratuity Payment in CTC, we are putting ourselves under two legislations.

Kindly opine.

Thanks, V K Gupta

From India, Panipat
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Dear Mr. Gupta,

Point taken. Can you share the cases where the Gratuity was payable to the employee under the Civil Law, even before completion of 5 years? This will make the point proven and conclusive.

Regards,
Ashutosh Thakre

From India, Mumbai
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As CTC means it is the total cost incurred by the company to hire an employee, so gratuity is also a part of this, meaning it is a cost incurred by the employer on behalf of the employee. Therefore, it can be included in CTC.
From India, undefined
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Dear Mr. A. Thakare and Mr. Dhingra,

Once an appointment letter on CTC basis is accepted by the candidate and he joins the company, it becomes a contract enforceable by law (Contract Act). Performance pay that depends on a formula is difficult for management to manipulate; however, when it is indicative, it can be subjective. Gratuity calculation included in CTC is not subjective but is capable of being calculated. In my opinion, if the CTC includes gratuity and an employee leaves in less than 5 years, the employer should compensate him with a suitable amount for the loss of gratuity included in the CTC. Failure to do so would be dishonest or unethical.

The decision to file a suit or not rests with the employee, taking into consideration the time taken and the expenses involved, as well as his disadvantages when fighting against a stronger opponent.

Regards,
A. S. Bhat

Dear Shri Bhat,

Compensation and gratuity are two distinct terms. The law recognizes gratuity under the Payment of Gratuity Act, payable under specific conditions. The Payment of Gratuity Act does not acknowledge the payment of any form of compensation if included in the CTC and stated in the offer or appointment letter as gratuity. However, the employee can seek legal recourse to recover other forms of compensation under the Contract Act if desired, but not under the guise of gratuity. Whether the judge agrees to have the employee compensated in another form instead of the gratuity elements included in the CTC depends solely on the employee's ability to convince the court.

Even in such a scenario, the employee must be prepared to face trials and appeals in higher courts initiated by the employer. This would put the employee at a significant disadvantage due to trial costs, compared to the receipt of the gratuity element in CTC.

Therefore, practical considerations should be prioritized over theoretical debates on administrative or management aspects. This issue pertains to the implications of the law and the pros and cons of an employee's pursuit of the gratuity claim within the CTC. Ultimately, the course of action depends on the individual's judgment.

Please let me know if you need further clarification or assistance.

Sincerely,
[Your Name]

From India, Delhi
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From India, Delhi
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From India, Delhi
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Mr. Thakre and Mr. Dhingra,

I have made my points, and you have made yours. Let us agree to disagree. But one thing Mr. Thakre stated something with which I do not agree (Employer has invested in the employee, etc.). With this, I sign off from this discussion.

Does the employee not make similar sacrifices, giving secondary priority to his family and friends? Does he not work more than 8 mandatory hours even at the drop of a hat? These days, I find people even in the public sector like insurance, banks, etc., where employees have to put in a lot more work than what is expected of him against all odds.

A S Bhat

From India, Pune
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Let me put it this way, will an employee have the right to claim gratuity at the time of leaving even if he has only <5 years of service if the gratuity is part of his CTC as per the appointment letter? What if this letter is silent about the Gratuity Act and conditions imposed under the Act?
From India, Bangalore
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Dear Shri Bhat,

Your point of opinion is okay, but as far as the legal implications are concerned, HR has to act within the legal framework with respect to labor and service laws to maintain employer-employee relations. Unless any issue is specifically included in the law books, the opinion, if felt to be rational, needs the stamp of the competent court of law through legal trial, as the interpretation of the law rests with the competent court only, not with the executive. The term CTC is yet to appear in any labor/service law.

From India, Delhi
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Let’s understand this from the perspective of “Books of Accounts”.

There are TWO employees – Ramesh and Suresh.

Suresh worked with X company for THREE years. His Basic Salary during SIX years was as follows [there was no DA or Retention Allowance]: 20,000/- INR; 24,000/- INR; and 26,000/- INR. Company X has deducted 11,538/- INR; 13,846/- INR; and 15,000/- INR respectively from his CTC and kept aside (15/26*Basic). Because Suresh has resigned after THREE years, as per rules he is not entitled for Gratuity. So, what will happen to the amount of 40,385/- INR which has been deducted from his CTC in last three years? Will they show this amount as profit?

Ramesh worked with X company for SIX Years. His Basic Salary during SIX years was as follows [there was no DA or Retention Allowance]: 12,000/- INR; 15,000/- INR; 18,000/- INR; 20,000/- INR; 24,000/- INR; and 26,000/- INR. Since the gratuity has been included as a part of CTC, therefore, every year Company X has deducted 6,923/- INR; 8,654/- INR; 10,385/- INR; 11,538/- INR ; 13,846/- INR; and 15,000/- INR respectively from his CTC and kept aside (15/26*Basic). However, when Ramesh resigned after the completion of SIX years, the Company should pay him 90,000/- INR (15/26*Basic*6) instead of 66,346/- INR [6,923 + 8,654 + 10,385 + 11,538 +13,846 + 15,000/-], how will they show 23,654/- INR [90,000 – 66,346]. Will they show it as loss?

Regards,
Sanjeev

From India, Mumbai
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From India, Delhi
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Dear Sanjeev,

Now your question has gone quite astray from the HR issues. With respect to the query about HR issues, profit or loss and accounting has no relevance. That is the headache of the Finance & Accounts personnel/ Chartered Accountants how to account for or under which head of account the amount has to be booked under the Indian or International Accounting Standards. As an HR professional, you have to take care of the provisions of the Gratuity Act, not the standards of accounting, which is also a very wide subject of specialisation. Had that been the headache of the HR, there would not have been the need to create a stututory Institute of Chartered Accountants of India by the Government of India and to appoint chartered accountants by the organisations only after qualifying the tough examination in three parts of the Institute or to appoint auditors to audit the accounts of the organisations.

However, if as a general knowledge you are curious to know the nitty gritty of accounting also with reference to the CTC, you may better sit with the CA of your organisation to understand that appropriately.

From India, Delhi
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nathrao
3180

Companies either take out an gratuity policy with insurance companies. or create a provision for accounting for gratuity amounts.
In such cases the amount which is earmarked in CTC but eventually not paid will be credited to the provision and amounts paid debited to the provision.
In the second case under provisioning has taken place.

From India, Pune
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Hello,

Thank you for clarifying on this topic. My question is that now I have changed about 3 organisations in the course of the last 12 years, and since I did not complete 5 years, my last employer did not pay me the amount of gratuity though it was part of CTC.

Can I ask them to pay that amount now? I left the last organization in 2012 by the way. (It is kind of late but I want to know the answer in such a scenario).

Thank you for your responses.

From India
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nathrao
3180

Entitlement for Gratuity arises on completion fro five years continuous service in an organization. So you are not entitled for gratuity.
From India, Pune
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That apart, so far we have discussed with respect to the Payment of Gratuity Act. What is the scenario in respect of establishments to which the Gratuity Act is not applicable, and their employees are under the Cost-to-Company (CTC) regime, which includes gratuity as a component? One may say it should be governed by what is stated in their applicable Gratuity Scheme. There also could be a clause stating that gratuity is payable for more than 5 years of service.
From India, Bangalore
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Yes, gratuity should be a component of the Total Cost to Company (TCTC) in my view. CTC stands for Cost to Company, which means the cost of the company for that employee, including employee payment and employer expenses.

Thanks & regards,

Sumit Kumar Saxena

From India, Ghaziabad
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