How should gratuity be incorporated into the CTC? Should it be provided on a monthly basis, and how should it be calculated? Additionally, when should gratuity be paid if the employee is still with the company?
From India, Hyderabad
From India, Hyderabad
Please browse through the Payment of Gratuity Act, it should clear most of your queries.
Gratuity is incorporated as 4.81% of basic salary of an employee. Why would you "provide gratuity on a monthly basis?", and why will you "pay gratuity when employee is still with the company"? It is paid when an employee renders services above 5 years, and is calculated with the following formula: 15/26* Basic* Years of Service.
From India, Bengaluru
3Gratuity is incorporated as 4.81% of basic salary of an employee. Why would you "provide gratuity on a monthly basis?", and why will you "pay gratuity when employee is still with the company"? It is paid when an employee renders services above 5 years, and is calculated with the following formula: 15/26* Basic* Years of Service.
From India, Bengaluru
By showing gratuity as part of remuneration or Cost To Company (CTC) you are agreeing that even if the employee leaves before five years, he will get gratuity. Moreover, the gratuity is calculated based on the salary at the time of leaving the service and the length of service, and it is not possible to predict what will be the salary and how long the employee would serve with you. Therefore, by adding an amount of gratuity, you are indirectly saying that the amount mentioned is payable even if he does not work for the qualifying period of five years. It is true that a majority of private companies show it as part of CTC but I will not recommend it because of the above mentioned factor.
Now, gratuity is not provided in the books every month, but as per Accounting Standards, you have to provide for the same annually in the books of accounts. If your establishment is in AP or Karnataka, it is necessary that you should invest an amount equal to the sum required for payment of gratuity as disclosed by actuarial valuation in the LIC's Gratuity policies.
From India, Kannur
Now, gratuity is not provided in the books every month, but as per Accounting Standards, you have to provide for the same annually in the books of accounts. If your establishment is in AP or Karnataka, it is necessary that you should invest an amount equal to the sum required for payment of gratuity as disclosed by actuarial valuation in the LIC's Gratuity policies.
From India, Kannur
Agree with Madhu Ji. Please visit Gratuity act clause calculation and timeline
From India, Bangalore
From India, Bangalore
Gratuity may be considered as a part of CTC. Till date there is no legal definition of CTC. Therefore, question does not arise for any case law or legal interpretation.
If gratuity is a part of CTC that does not mean to pay it even employee has not completed 5 years of continuous service as per PG Act. There are lot of items are part of CTC but not necessary to pay without fulfilling the basic conditions of payment say Statutory Bonus, LTA/LTC etc.
S K Bandyopadhyay ( Howrah, WB)
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
From India, New Delhi
If gratuity is a part of CTC that does not mean to pay it even employee has not completed 5 years of continuous service as per PG Act. There are lot of items are part of CTC but not necessary to pay without fulfilling the basic conditions of payment say Statutory Bonus, LTA/LTC etc.
S K Bandyopadhyay ( Howrah, WB)
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
From India, New Delhi
Hi,
If Gratuity is part of Gross salary then it will be wrong.
It is customary that many Companies show premium paid to insurance company ( for Group Gratuity scheme) as part of the ctc and there is no obligation on the part of the employer to pay gratuity if the employee leaves before completing 5 years.
From India, Madras
If Gratuity is part of Gross salary then it will be wrong.
It is customary that many Companies show premium paid to insurance company ( for Group Gratuity scheme) as part of the ctc and there is no obligation on the part of the employer to pay gratuity if the employee leaves before completing 5 years.
From India, Madras
There is no court verdict in support of my observations about the inclusion of gratuity as part of CTC or remuneration sheet, I believe. In the absence of any legal sanctity to the word CTC, it shall mean all costs in connection with employment of a person or from the employees' side all benefits that employees are entitled in return for the service they offer to the organisation.
The remuneration shall be split up into three parts as follows:
(1) fixed and quantifiable amounts which will be mentioned in the offer/ contract of employment,
(2) variable allowances the payment of which are based on some conditions, like overtime allowance which is depended on the employee working over and above the scheduled hours, bonus the rate of which is again depended upon the profitability/ available surplus, commission/ incentives which is based on some results achieved by the employee say, sales target, production target etc, house rent allowance which is per se a compensatory allowance depended upon the employee residing in leased house, and is not paid to those who resides in own houses or whose spouses are in receipt of HRA. But many private companies have included this component as one of the major component of salary without reference to whether they reside in leased houses or not, on the presumption that HRA is an allowance excluded from the scope of wages for PF, Gratuity etc.
(3) other benefits that the employees enjoy, like subsidised food, concessional rate of essentials, transportation/ cab facilities, employer contribution to PF, gratuity payable at the time of termination of employment, leave travel concession etc.
If the rewards for service is designed in such a way that there is specific categorisation as to what is salary or what all are included in the wages/ salary, and what all are variables and other benefits, there would be no confusion in computation of gratuity. When there is no dispute that part one components are wages which will be considered for all statutory matters, I am afraid why the private companies include HRA in the First Part of Salary? When the amount of HRA is fixed and not varying depending upon the city of posting and when it is paid without reference to whether the employee is residing in leased house or not or whether his spouse is in receipt of HRA, it shall be part of salary only. Then it shall also be included for computation of gratuity. This is going to be a challenge, I believe.
From India, Kannur
The remuneration shall be split up into three parts as follows:
(1) fixed and quantifiable amounts which will be mentioned in the offer/ contract of employment,
(2) variable allowances the payment of which are based on some conditions, like overtime allowance which is depended on the employee working over and above the scheduled hours, bonus the rate of which is again depended upon the profitability/ available surplus, commission/ incentives which is based on some results achieved by the employee say, sales target, production target etc, house rent allowance which is per se a compensatory allowance depended upon the employee residing in leased house, and is not paid to those who resides in own houses or whose spouses are in receipt of HRA. But many private companies have included this component as one of the major component of salary without reference to whether they reside in leased houses or not, on the presumption that HRA is an allowance excluded from the scope of wages for PF, Gratuity etc.
(3) other benefits that the employees enjoy, like subsidised food, concessional rate of essentials, transportation/ cab facilities, employer contribution to PF, gratuity payable at the time of termination of employment, leave travel concession etc.
If the rewards for service is designed in such a way that there is specific categorisation as to what is salary or what all are included in the wages/ salary, and what all are variables and other benefits, there would be no confusion in computation of gratuity. When there is no dispute that part one components are wages which will be considered for all statutory matters, I am afraid why the private companies include HRA in the First Part of Salary? When the amount of HRA is fixed and not varying depending upon the city of posting and when it is paid without reference to whether the employee is residing in leased house or not or whether his spouse is in receipt of HRA, it shall be part of salary only. Then it shall also be included for computation of gratuity. This is going to be a challenge, I believe.
From India, Kannur
Gratuity, as you know is an employee benefit payable-
i) to the leaving employee who completed 5 yrs of continuous service.
ii) It's not payable either monthly or annually.
iii)But since it's a charge accruing every completed year of service has to be accounted every financial year.
And hence it is a 'cost to the co.' to be counted among CTC 'as such'. Since the need to pay arises when only an employee leaves the establishment and that too only in respect of those completing 5 yrs of continuous service as per the Gratuity act. Therefore there is no requirement whatsoever either to pay or to account the 'liability' on monthly basis.
And though the liability 'to pay' arises only after completion of 5 yrs.in respect of every such employee, but the accounting thereof as an 'expense' by way of a provision in the accounts arises 'annually'.
From India, Bangalore
i) to the leaving employee who completed 5 yrs of continuous service.
ii) It's not payable either monthly or annually.
iii)But since it's a charge accruing every completed year of service has to be accounted every financial year.
And hence it is a 'cost to the co.' to be counted among CTC 'as such'. Since the need to pay arises when only an employee leaves the establishment and that too only in respect of those completing 5 yrs of continuous service as per the Gratuity act. Therefore there is no requirement whatsoever either to pay or to account the 'liability' on monthly basis.
And though the liability 'to pay' arises only after completion of 5 yrs.in respect of every such employee, but the accounting thereof as an 'expense' by way of a provision in the accounts arises 'annually'.
From India, Bangalore
To my understanding, in spite of there being no court verdict, Mr. Madhu's opinion could turn out to be an oracle. It is very much likely that a Constitutional Court could hold, in situations where gratuity is part of CTC, that employees are entitled for gratuity irrespective of the completion of eligible period of service.
From India, Kochi
From India, Kochi
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FORM-F-NOMINATI ON OF GRATUITY.pdf
Gratuity Form I.doc