I agree on the Rs 10000 bit. However there are many aspects that are considered in the CTC.
First of all most MNC's (and Im sure every other Industry too) have 2 CTC figures.
a) One that is declared to the employee and includes his salary, perks and other reimbursable components
b) an internal CTC that considers many other items that are not declared but are incured as a result of hiring the employee. These may range from Uniform Expenses, safety equipment (shoes, eye protection, masks and consumables), water per person per month, electricity, assets like desktops software licenses, file storege space, furniture, power consumption, food allowances, tea, coffee and buiscuits. THis CTC is exculsive to HR and Finance and not disclosed. this goes towwards budgeting for operational costs.
Now since gratuity is not reimbursable to the employee on an annual basis and in the employees perspective is only a "terminal" benifit, mention of this as a one liner in the Appointment letter would be sufficient therey indicating the 5 year period. Inclusion of the same in annual declared CTC and specifically before the completion of 5 years only raises confusion. This expenses should be left out of the declared CTC. This would avoid confusion and be ethically right to the employee.
Items in CTC are reimbursable to the employee annually (annual financial statement closure). If a component of Gratuity is added in the CTC of the employee who has not completed 5 years it means that
a) this amount is not being paid to him and is treated as a deduction.
b) If the employee does not complete 5 years the amount should be paid back to him as ex-gratia amount not withstanding the Gratuity act as the Gratuity act is not applicable to him. This is ethical because the amount actually is due to the employee by way of annual deductions from his CTC.
However if Gratuity is not mentioned in the employees CTC, he has no right in demanding that amount as terminal beinfit until the completion of 5 continious year service.
These are my opinions and I hope someone who is profficient in labor law will share my views.
From India, Pune
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1First of all most MNC's (and Im sure every other Industry too) have 2 CTC figures.
a) One that is declared to the employee and includes his salary, perks and other reimbursable components
b) an internal CTC that considers many other items that are not declared but are incured as a result of hiring the employee. These may range from Uniform Expenses, safety equipment (shoes, eye protection, masks and consumables), water per person per month, electricity, assets like desktops software licenses, file storege space, furniture, power consumption, food allowances, tea, coffee and buiscuits. THis CTC is exculsive to HR and Finance and not disclosed. this goes towwards budgeting for operational costs.
Now since gratuity is not reimbursable to the employee on an annual basis and in the employees perspective is only a "terminal" benifit, mention of this as a one liner in the Appointment letter would be sufficient therey indicating the 5 year period. Inclusion of the same in annual declared CTC and specifically before the completion of 5 years only raises confusion. This expenses should be left out of the declared CTC. This would avoid confusion and be ethically right to the employee.
Items in CTC are reimbursable to the employee annually (annual financial statement closure). If a component of Gratuity is added in the CTC of the employee who has not completed 5 years it means that
a) this amount is not being paid to him and is treated as a deduction.
b) If the employee does not complete 5 years the amount should be paid back to him as ex-gratia amount not withstanding the Gratuity act as the Gratuity act is not applicable to him. This is ethical because the amount actually is due to the employee by way of annual deductions from his CTC.
However if Gratuity is not mentioned in the employees CTC, he has no right in demanding that amount as terminal beinfit until the completion of 5 continious year service.
These are my opinions and I hope someone who is profficient in labor law will share my views.
From India, Pune
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This point had been raised earlier in this forum and clarification given. You may like to refer to the same. If the employee is leaving before completion of five years, he is entitled to recieve the entire amount deducted by the employer.
Cyril
From India, Nagpur
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Cyril
From India, Nagpur
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Thanks for clarifying it Cyril. however at the time of posting I was unable to find a similar post that was decisively on this subject. Most of them concentrated on applicability of the same when the employee has forked for under 5 years. None of them were specific to the annual deduction of Gratuity from the employees CTC from Year 1.
From India, Pune
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From India, Pune
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I am showing these comments to my HR manager but he is saying that this is a company policy please tell me what I can do.
I am also saying him that according to our offer letter & salary slip we can take him to the court he says that it is not possible because it is a part of CTC.
I want to know that there is any law if company did not remburse our gratuity amount on leaving time / terminated time, which can help us to casefile on company?
From India, Ghaziabad
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I am also saying him that according to our offer letter & salary slip we can take him to the court he says that it is not possible because it is a part of CTC.
I want to know that there is any law if company did not remburse our gratuity amount on leaving time / terminated time, which can help us to casefile on company?
From India, Ghaziabad
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Hi,
This issue was raised in this forum, and we had given our opinion. It has been rightly advised that if the contribution to the payment of gratuity is being shown in CTC and the employee quits before the eligibility period of five years, the amount so deducted must be refunded by the employer. However, if the employer incorporates a clause "subject to eligibility under the Payment of Gratuity Act," then the employee may not be able to claim this amount. In this case, the employer can take a plea that while finalizing the package, this was made clear to the employee, i.e., he will be entitled to the benefit on completion of the eligibility period of 5 years. This is based on our discussions with the Counsel.
Cyril
From India, Nagpur
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This issue was raised in this forum, and we had given our opinion. It has been rightly advised that if the contribution to the payment of gratuity is being shown in CTC and the employee quits before the eligibility period of five years, the amount so deducted must be refunded by the employer. However, if the employer incorporates a clause "subject to eligibility under the Payment of Gratuity Act," then the employee may not be able to claim this amount. In this case, the employer can take a plea that while finalizing the package, this was made clear to the employee, i.e., he will be entitled to the benefit on completion of the eligibility period of 5 years. This is based on our discussions with the Counsel.
Cyril
From India, Nagpur
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There is nothing wrong in showing the gratuity component in CTC provided the employee is informed of the same prior to adding this as a component in CTC. This will enable the employee to bargain about his pay to his advantage. In such circumstances, adding the Gratuity component in CTC is fair.
The other ethical and fair way is to pay the gratuity component in case the employee leaves the employment before completing the eligibility period.
Nowadays, many employers are taking group gratuity policies. Care should be taken to incorporate relevant clauses/conditions to pay gratuity even if the employee is not eligible to receive gratuity upon leaving the service if gratuity is shown as part of CTC.
From India, Hyderabad
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The other ethical and fair way is to pay the gratuity component in case the employee leaves the employment before completing the eligibility period.
Nowadays, many employers are taking group gratuity policies. Care should be taken to incorporate relevant clauses/conditions to pay gratuity even if the employee is not eligible to receive gratuity upon leaving the service if gratuity is shown as part of CTC.
From India, Hyderabad
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The current concept of CTC made everything clear. It is the total cost for the company with reference to the recruited employee. Gratuity is one part of it. When an employee leaves the company before becoming eligible for Gratuity, the company does not need to provide the amount shown as part of CTC to the departing employee.
It is simply a concept. As accounts are prepared under the "Going Concern Aspect," it is a concept designed to demonstrate to employees the cost to the company. In reality, nothing is deducted from the payable amount. Therefore, an employee claiming it back is not appropriate. It is not advisable for the company to reimburse that fictitious amount simply shown as part of CTC; it rightfully belongs to the employee only when they remain in service.
From India, Hyderabad
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It is simply a concept. As accounts are prepared under the "Going Concern Aspect," it is a concept designed to demonstrate to employees the cost to the company. In reality, nothing is deducted from the payable amount. Therefore, an employee claiming it back is not appropriate. It is not advisable for the company to reimburse that fictitious amount simply shown as part of CTC; it rightfully belongs to the employee only when they remain in service.
From India, Hyderabad
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Dear VSChalla,
It's simple that until gratuity is not paid, how would a company incur the cost or how would it be a cost to the company? It's just that the employee is shown a big amount, but in actuality, it is gross-gratuity (and others) that he is getting. Maybe it helps the company in getting tax benefits, but it confuses a lot of employees in reference to their tax planning.
Somewhere above, I was reading that the employer needs to submit this amount to LIC. Does LIC keep it for no interest giving on it? And if an employee leaves before the 5 years, what happens to that money deposited in the employee's name? Whether the employer is refunded, and if this is the case, it should be the entitlement of the employee, not the employer. What do you all say?
Please let me know your thoughts on this matter.
From India, Vadodara
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It's simple that until gratuity is not paid, how would a company incur the cost or how would it be a cost to the company? It's just that the employee is shown a big amount, but in actuality, it is gross-gratuity (and others) that he is getting. Maybe it helps the company in getting tax benefits, but it confuses a lot of employees in reference to their tax planning.
Somewhere above, I was reading that the employer needs to submit this amount to LIC. Does LIC keep it for no interest giving on it? And if an employee leaves before the 5 years, what happens to that money deposited in the employee's name? Whether the employer is refunded, and if this is the case, it should be the entitlement of the employee, not the employer. What do you all say?
Please let me know your thoughts on this matter.
From India, Vadodara
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I agree with you, Mahendrasingh. The CTC is an agreement between the employer and the employee. If an amount is specified in the CTC for the first 5 years, the same should be paid to the employee, notwithstanding the Gratuity Act.
From India, Pune
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From India, Pune
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Thank you all,
We have mulled over this issue for a long time and have succeeded in extracting some useful insights. However, I really miss having somebody share practical experience regarding this particular situation.
While understanding legal and labor provisions is important, I believe that sharing practical knowledge would be even more helpful on this forum. In reality, on this issue, the individuals most eager to learn would likely be the victims (i.e., employees) rather than others. Therefore, speaking in a practical sense would be more beneficial.
I encourage people to provide further clarification by sharing practical cases rather than solely focusing on legal provisions. It may be beneficial to briefly mention the legal concepts, but delving too deeply into them could be overwhelming for many.
In a previous discussion, Mr. VSChalla explained why CTC generally includes gratuity components. He stated that "It is a concept only. As Accounts are prepared as 'Going Concern Aspect,' it is a concept just to show the employee that it would be a cost to the company."
I agree with him that it would indeed be a cost to the company. From this perspective, it becomes evident that since the company anticipates this future cost, it may include gratuity as a deductible amount in the CTC mentioned in the appointment letters, essentially collecting this sum in advance from the employee. This practice can be justified.
However, another aspect that we must acknowledge is that the employer deposits this amount with LIC, indicating an actual fund transfer between the company and LIC on behalf of the employee. When an employee completes five years of service, the same amount is refunded to them from the gratuity fund. Therefore, it is justifiable to include this in the CTC and deduct it in advance.
But what happens if an employee leaves before completing five years, and the deducted amount is not refunded? It is important to recognize that a gratuity component is deducted from the employee's CTC/payable amount and managed by LIC. Can we simply dismiss this as a concept with no real value that the employee cannot claim? When an amount is deposited to LIC under the employee's name for gratuity, and there is a genuine fund transfer, how can it be considered merely a concept? Why is this conceptual aspect necessary in the CTC if it does not materialize physically?
Since employees are shown the actual cost to the company that they are paid, why include such an abstract component in their CTC? If it is included, should it not be claimable by the employee?
If the company were to retrieve that fund, it would indeed be fraudulent.
I would greatly appreciate it if someone could share their practical experience on this specific situation, including insights on the ex gratia payment procedure.
Thank you
From India, Vadodara
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We have mulled over this issue for a long time and have succeeded in extracting some useful insights. However, I really miss having somebody share practical experience regarding this particular situation.
While understanding legal and labor provisions is important, I believe that sharing practical knowledge would be even more helpful on this forum. In reality, on this issue, the individuals most eager to learn would likely be the victims (i.e., employees) rather than others. Therefore, speaking in a practical sense would be more beneficial.
I encourage people to provide further clarification by sharing practical cases rather than solely focusing on legal provisions. It may be beneficial to briefly mention the legal concepts, but delving too deeply into them could be overwhelming for many.
In a previous discussion, Mr. VSChalla explained why CTC generally includes gratuity components. He stated that "It is a concept only. As Accounts are prepared as 'Going Concern Aspect,' it is a concept just to show the employee that it would be a cost to the company."
I agree with him that it would indeed be a cost to the company. From this perspective, it becomes evident that since the company anticipates this future cost, it may include gratuity as a deductible amount in the CTC mentioned in the appointment letters, essentially collecting this sum in advance from the employee. This practice can be justified.
However, another aspect that we must acknowledge is that the employer deposits this amount with LIC, indicating an actual fund transfer between the company and LIC on behalf of the employee. When an employee completes five years of service, the same amount is refunded to them from the gratuity fund. Therefore, it is justifiable to include this in the CTC and deduct it in advance.
But what happens if an employee leaves before completing five years, and the deducted amount is not refunded? It is important to recognize that a gratuity component is deducted from the employee's CTC/payable amount and managed by LIC. Can we simply dismiss this as a concept with no real value that the employee cannot claim? When an amount is deposited to LIC under the employee's name for gratuity, and there is a genuine fund transfer, how can it be considered merely a concept? Why is this conceptual aspect necessary in the CTC if it does not materialize physically?
Since employees are shown the actual cost to the company that they are paid, why include such an abstract component in their CTC? If it is included, should it not be claimable by the employee?
If the company were to retrieve that fund, it would indeed be fraudulent.
I would greatly appreciate it if someone could share their practical experience on this specific situation, including insights on the ex gratia payment procedure.
Thank you
From India, Vadodara
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