In the definition, other allowances shall include allowances not forming part of wages but within the terms of employment. In private companies, however, other allowance is an allowance paid to all employees and is the residue left after appropriating the least of the gross wages to Basic Pay and then to HRA, and then to Conveyance, etc. In private companies, 'other allowance' forms the biggest component. Interestingly, when you take a leave, all these components will get deducted. It is not simply Basic wages that are subjected to deduction, but the entire emoluments are proportionately reduced.
In many organizations, the basic wages will remain unchanged every year, but in their increment letter, they increase HRA and other allowances. When basic pay (fixed by the employer) is the salary that qualifies for gratuity, why there is no annual increment in it is a question generally asked by blue and white-collar employees.
The definition of wages under Gratuity Act is more or less similar to what is given in the Provident Fund Act. Under the PF Act, basic wages mean gross salary. The exception is available only to HRA, which is paid separately and not forming part of the salary but within the purview of service agreements.
I believe that for an employee, what is salary is the total sum, and the bifurcation is done by the employer. As such, what an employee agrees to is the total salary and not the compartments involved in it. My perception about gratuity qualifying salary is centered on these elements.
In the public sector, there is a definite pay structure with a Basic component, DA varying according to changes in the CPI, allowances like HRA which are paid as per the city of residence, category of employees, and other parameters. Private companies do not have such basic pay scales. They fix the lowest amount as basic salary and generally take 40% or 50% of the gross salary as HRA on the presumption that Income Tax authorities permit such a calculation. The calculation of income tax is different, and it is not based on gross salary. Moreover, for deduction for absence from duty, gross salary is the salary agreed, and for contribution or payment of gratuity, the basic pay is the agreed salary. For me, what is deducted as one day's salary in case an employee takes a leave is the salary due to him for all purposes. If we allow accepting a broken-up salary for the purpose of statutory contributions, the gratuity which a daily-rated casual worker gets will be far higher than a monthly-paid manager!
From India, Kannur
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4481In many organizations, the basic wages will remain unchanged every year, but in their increment letter, they increase HRA and other allowances. When basic pay (fixed by the employer) is the salary that qualifies for gratuity, why there is no annual increment in it is a question generally asked by blue and white-collar employees.
The definition of wages under Gratuity Act is more or less similar to what is given in the Provident Fund Act. Under the PF Act, basic wages mean gross salary. The exception is available only to HRA, which is paid separately and not forming part of the salary but within the purview of service agreements.
I believe that for an employee, what is salary is the total sum, and the bifurcation is done by the employer. As such, what an employee agrees to is the total salary and not the compartments involved in it. My perception about gratuity qualifying salary is centered on these elements.
In the public sector, there is a definite pay structure with a Basic component, DA varying according to changes in the CPI, allowances like HRA which are paid as per the city of residence, category of employees, and other parameters. Private companies do not have such basic pay scales. They fix the lowest amount as basic salary and generally take 40% or 50% of the gross salary as HRA on the presumption that Income Tax authorities permit such a calculation. The calculation of income tax is different, and it is not based on gross salary. Moreover, for deduction for absence from duty, gross salary is the salary agreed, and for contribution or payment of gratuity, the basic pay is the agreed salary. For me, what is deducted as one day's salary in case an employee takes a leave is the salary due to him for all purposes. If we allow accepting a broken-up salary for the purpose of statutory contributions, the gratuity which a daily-rated casual worker gets will be far higher than a monthly-paid manager!
From India, Kannur
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Saswata,
Have you read my query and understood it as you claim to be an Auditor?
How is the company losing and the employee gaining?
Can you explain your stand with calculations to support your presumptions?
Anuradha
Anuradha, I have read your post, and I do not understand your query. If you look at the attachment you have posted, you are computing gratuity at 4.8% of salary as a part of CTC. The total of 5 years is ₹ 89,542. If you consider the CTC as the money the employee gets for his work (which technically is wrong), it means the employee is due that amount. Another way of thinking is that out of his CTC, ₹ 89,542 is deducted over the years (since it is not paid to him).
At the end when the employee leaves, he is getting ₹ 94,553. What was 'deducted' is ₹ 89,542.
Now, please tell me who is gaining and who is losing? Please tell me how the employee thinks he is losing ₹ 5,000.
From India, Mumbai
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Have you read my query and understood it as you claim to be an Auditor?
How is the company losing and the employee gaining?
Can you explain your stand with calculations to support your presumptions?
Anuradha
Anuradha, I have read your post, and I do not understand your query. If you look at the attachment you have posted, you are computing gratuity at 4.8% of salary as a part of CTC. The total of 5 years is ₹ 89,542. If you consider the CTC as the money the employee gets for his work (which technically is wrong), it means the employee is due that amount. Another way of thinking is that out of his CTC, ₹ 89,542 is deducted over the years (since it is not paid to him).
At the end when the employee leaves, he is getting ₹ 94,553. What was 'deducted' is ₹ 89,542.
Now, please tell me who is gaining and who is losing? Please tell me how the employee thinks he is losing ₹ 5,000.
From India, Mumbai
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If it is written in the appointment letter that the payment of gratuity shall be as per the Payment of Gratuity Act 1972, then the gratuity will be payable only after completion of 5 years of service, that too at the last drawn salary of the employee. Otherwise, if the employee has not completed 5 years of service, then the gratuity would be payable as per CTC, i.e., at the rate drawn by the employee from time to time.
- S. K. Mittal
Industrial & Labour Lawyer
9319956443
From India, Faridabad
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- S. K. Mittal
Industrial & Labour Lawyer
9319956443
From India, Faridabad
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All 'other allowances ' though part of terms of employment is excluded in the definition of wages in the POG Act.
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Allowances uniformly paid to all employees should be part of wages/salary. I repeat that if these "other allowances" are considered for deduction in proportion to the days an employee remained on leave without pay, they should be part of wages/salary for all purposes including gratuity.
From India, Kannur
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From India, Kannur
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