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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1158However, 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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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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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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If the above proposal gets implemented, then the question automatically gets answered.
Regards,
Ashutosh Thakre
From India, Mumbai
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I don’t 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 don’t 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 LIC’s 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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I don’t 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 LIC’s 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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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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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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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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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 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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