Hi all!
What is CTC? If I were to include Gratuity in CTC, is it not required to be given to the employee if he were to resign by the end of the 3rd year? Will the employer account this as his income on the resignation of the employee, as he had already accounted for it as an expense?
Indicating that so much of Gratuity is payable if an employee were to work for 5 years (Approx) is fine. Gratuity is calculated on the last salary drawn, how can anyone compute it before the 5th year??
Gratuity is a statutory payment, and all employers are required to pay it if an employee completes the required period of service. How does this change in comparison?
Best Regards,
From India, Bangalore
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9What is CTC? If I were to include Gratuity in CTC, is it not required to be given to the employee if he were to resign by the end of the 3rd year? Will the employer account this as his income on the resignation of the employee, as he had already accounted for it as an expense?
Indicating that so much of Gratuity is payable if an employee were to work for 5 years (Approx) is fine. Gratuity is calculated on the last salary drawn, how can anyone compute it before the 5th year??
Gratuity is a statutory payment, and all employers are required to pay it if an employee completes the required period of service. How does this change in comparison?
Best Regards,
From India, Bangalore
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I have read all the comments mentioned, and some of them are useful and clear. CTC stands for cost to company. This is what a company has to spend on a particular employee. Nowadays, companies are clearly showing prospective employees what they will be spending on them. It is transparent and clear. Now, regarding statutory compliance, it is important that we all follow, and that is the very reason it is shown clearly in CTC. The company is liable to pay only if the employee has completed 4 years and 8 months or more; otherwise, it is not to be paid.
These are all the best practices that all companies wish to follow, and they are successful only with the combined effort of all employees and management.
- Chakradhar Reddy.
From India, Hyderabad
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These are all the best practices that all companies wish to follow, and they are successful only with the combined effort of all employees and management.
- Chakradhar Reddy.
From India, Hyderabad
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My question is: Is gratuity only to be disclosed in the statement as part of CTC, but no accounting entries are to be passed until 4 years 8 months? If yes, what entry is passed on completion of 4 years 8th month? Are all amounts, including prior period expenses, accounted for in the books?
How about accounting principles, accrual policy, accounting standard compliances, etc.?
From India, Bangalore
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How about accounting principles, accrual policy, accounting standard compliances, etc.?
From India, Bangalore
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Dear Nikhil Kambleji,
The simplest definition of Gratuity is a sum of money paid to an employee as a reward in the form of money at the end of a period of employment for his past services given as a gesture of gratitude towards the services rendered.
Now, to earn gratuity according to the Gratuity Act, it specifies that one gets to earn gratuity only after completing 5 years of continuous service in any company, and this amount gets accrued into the employee's account until the time he/she changes the job or retires. In any case, the gratuity account has to be settled upon the departure of the employee.
The calculation is half the basic salary (at the time of departure/quitting the company due to a change of job or retiring) multiplied by the number of years of service.
As Mr. Christopher has pointed out, it cannot be deducted from the Gross Salary but can be adjusted in CTC, and that's the practice followed by most IT Companies. I too strongly feel that this is not the right practice, and it should not be apportioned in CTC as a component because logically it should be disbursed by the employer company. For this reason, several companies have formed a 'trust,' and the members of the trust work on a certain base amount set aside by the company to enable gratuity disbursement. However, in recent times, LIC has a Group Gratuity Insurance, to which companies contribute a certain sum of money as a premium. The base for operation is that it should have a minimum of 100 members only then the policy can be made operational, as per the servicing viability of the insurance company.
What I have provided here is the broad policy. If one is interested, one can search on Google for both the Gratuity Act and also LIC's portal for specifics of LIC's Group Gratuity Scheme.
Finally, when you join a company and it apportions gratuity in your CTC, I'm afraid you have no option at all. You have to accept it without dispute, or you can choose not to join that company. There is no alternative whatsoever.
From India, Hyderabad
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The simplest definition of Gratuity is a sum of money paid to an employee as a reward in the form of money at the end of a period of employment for his past services given as a gesture of gratitude towards the services rendered.
Now, to earn gratuity according to the Gratuity Act, it specifies that one gets to earn gratuity only after completing 5 years of continuous service in any company, and this amount gets accrued into the employee's account until the time he/she changes the job or retires. In any case, the gratuity account has to be settled upon the departure of the employee.
The calculation is half the basic salary (at the time of departure/quitting the company due to a change of job or retiring) multiplied by the number of years of service.
As Mr. Christopher has pointed out, it cannot be deducted from the Gross Salary but can be adjusted in CTC, and that's the practice followed by most IT Companies. I too strongly feel that this is not the right practice, and it should not be apportioned in CTC as a component because logically it should be disbursed by the employer company. For this reason, several companies have formed a 'trust,' and the members of the trust work on a certain base amount set aside by the company to enable gratuity disbursement. However, in recent times, LIC has a Group Gratuity Insurance, to which companies contribute a certain sum of money as a premium. The base for operation is that it should have a minimum of 100 members only then the policy can be made operational, as per the servicing viability of the insurance company.
What I have provided here is the broad policy. If one is interested, one can search on Google for both the Gratuity Act and also LIC's portal for specifics of LIC's Group Gratuity Scheme.
Finally, when you join a company and it apportions gratuity in your CTC, I'm afraid you have no option at all. You have to accept it without dispute, or you can choose not to join that company. There is no alternative whatsoever.
From India, Hyderabad
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Dr. Alam,
The realities are quite different from a textbook situation. Every company adds as many things as possible to CTC. Many companies add training costs. Does it come to the employee? No way. But it's still added as a practice (check any CTC given in MBA colleges). Hongkong Bank used to add a discount on housing loans to the CTC, which the employee can't get in any case until working for 5 years (not sure if the practice is still alive). So, CTC is made to look high so that employees are attracted to it. Any smart employee will ignore all those that he is not actually getting. In fact, employees mostly focus on take-home amounts only.
Of course, I would like to know from the original poster whether he was referring to the CTC or what appears on his salary slip.
From India, Mumbai
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The realities are quite different from a textbook situation. Every company adds as many things as possible to CTC. Many companies add training costs. Does it come to the employee? No way. But it's still added as a practice (check any CTC given in MBA colleges). Hongkong Bank used to add a discount on housing loans to the CTC, which the employee can't get in any case until working for 5 years (not sure if the practice is still alive). So, CTC is made to look high so that employees are attracted to it. Any smart employee will ignore all those that he is not actually getting. In fact, employees mostly focus on take-home amounts only.
Of course, I would like to know from the original poster whether he was referring to the CTC or what appears on his salary slip.
From India, Mumbai
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Dear Mr. N. Kamble,
The company is well within its right to show Gratuity as a component in CTC. Components like Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., may be shown as a part of the employer's contribution to an employee. These components are generally negotiable.
Take care,
Sourav Mukherjee
From India, Bangalore
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The company is well within its right to show Gratuity as a component in CTC. Components like Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., may be shown as a part of the employer's contribution to an employee. These components are generally negotiable.
Take care,
Sourav Mukherjee
From India, Bangalore
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Dear Sourav,
Gratuity becomes a cost only after the completion of a minimum of 4 years and 10 months of service. There is no way one can negotiate the gratuity component with the employer. Even the employer himself can calculate approximate gratuity only in the 5th year. That's why accounting standards adopt actuary valuations for making provisions. All other calculations are only wild assumptions.
I think any component, by whatever name you call it, once included as part of CTC, is legally due and payable (directly or indirectly) to the employee and has to be paid. If gratuity is shown as part of CTC and an employee resigns after, say, 2 years, will this component be payable to him?
Best Regards,
Divakar
From India, Bangalore
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Gratuity becomes a cost only after the completion of a minimum of 4 years and 10 months of service. There is no way one can negotiate the gratuity component with the employer. Even the employer himself can calculate approximate gratuity only in the 5th year. That's why accounting standards adopt actuary valuations for making provisions. All other calculations are only wild assumptions.
I think any component, by whatever name you call it, once included as part of CTC, is legally due and payable (directly or indirectly) to the employee and has to be paid. If gratuity is shown as part of CTC and an employee resigns after, say, 2 years, will this component be payable to him?
Best Regards,
Divakar
From India, Bangalore
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wrong practice gratuity can’t be deducted from employee salary, but it should be the part of CTC which determine the cost of an employee. Thanks & Regards, From, Sumit Kumar Saxena
From India, Ghaziabad
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From India, Ghaziabad
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Agreed!
But if we do not know whether a person will be staying in the company for at least 5 years to avail of gratuity, how do the calculations go for gratuity from day one?
Sir, can you please explain how companies calculate gratuity to add to CTC as an employer contribution for an employee. Is it on a pro-rata basis?
Thanks!
From India, New Delhi
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But if we do not know whether a person will be staying in the company for at least 5 years to avail of gratuity, how do the calculations go for gratuity from day one?
Sir, can you please explain how companies calculate gratuity to add to CTC as an employer contribution for an employee. Is it on a pro-rata basis?
Thanks!
From India, New Delhi
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