Hi Ajay,
It is not advisable to include gratuity payment in CTC. It is always uncertain whether the employee will receive gratuity or not as they need to serve 5 years in an organization to become eligible for gratuity. Furthermore, the gratuity calculation of an employee depends on how many years they have served in the organization. You cannot presume how many years an employee will work in your company. So, it is better not to include the payment of gratuity in CTC while giving the offer letter. It should be shown in some miscellaneous head.
Regarding your second query, in no case can an employee claim gratuity without completing 5 years of service, which is statutory.
Srihari Rao
From India, Delhi
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It is not advisable to include gratuity payment in CTC. It is always uncertain whether the employee will receive gratuity or not as they need to serve 5 years in an organization to become eligible for gratuity. Furthermore, the gratuity calculation of an employee depends on how many years they have served in the organization. You cannot presume how many years an employee will work in your company. So, it is better not to include the payment of gratuity in CTC while giving the offer letter. It should be shown in some miscellaneous head.
Regarding your second query, in no case can an employee claim gratuity without completing 5 years of service, which is statutory.
Srihari Rao
From India, Delhi
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Hi,
CTC means Cost to Company or how much cost is being incurred by the company towards the individual employee. Gratuity is also a cost that is incurred by the company from Day 1, irrespective of whether the employee is going to stay in the company for 5 years or not and hence has to be shown in the CTC workings. The company has to set aside 4.8% of the Basic Salary of the individual towards Gratuity.
You need not specifically mention in the CTC workings that Gratuity would be paid as per the act - it is understood.
Generally, when an employee is selected and the salary negotiated, the other benefits that are applicable to the employee like Bonus, Leave Salary, etc are discussed, and he is also told that Gratuity calculation would start from the first month itself. So there is no way that he can claim Gratuity if he leaves before completion of 5 years.
The problem is that CTC is loosely mentioned in place of salary. CTC is what the company is bothered about while calculating the Wages & Salaries Cost and the employee should only be bothered about the Gross Salary and Benefits he gets.
Regards,
Vasudev
From India, Madras
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1CTC means Cost to Company or how much cost is being incurred by the company towards the individual employee. Gratuity is also a cost that is incurred by the company from Day 1, irrespective of whether the employee is going to stay in the company for 5 years or not and hence has to be shown in the CTC workings. The company has to set aside 4.8% of the Basic Salary of the individual towards Gratuity.
You need not specifically mention in the CTC workings that Gratuity would be paid as per the act - it is understood.
Generally, when an employee is selected and the salary negotiated, the other benefits that are applicable to the employee like Bonus, Leave Salary, etc are discussed, and he is also told that Gratuity calculation would start from the first month itself. So there is no way that he can claim Gratuity if he leaves before completion of 5 years.
The problem is that CTC is loosely mentioned in place of salary. CTC is what the company is bothered about while calculating the Wages & Salaries Cost and the employee should only be bothered about the Gross Salary and Benefits he gets.
Regards,
Vasudev
From India, Madras
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Vasudev is one hundred percent correct on all counts. CTC may, and normally does, include all expenditure that the employer incurs on behalf of the employee. Though different companies include different elements in the calculation of CTC, and though you will never find it clearly defined anywhere, CTC normally includes elements that are paid to the employee by way of salary and various allowances, AND also other expenses the employer incurs on behalf of the employee to comply with various legal provisions. Some typical examples are: Employer's contribution towards Provident Fund, Gratuity, Leave Encashment (unfair, but many companies do it), Mediclaim premium, Group Insurance premium, estimated annual bonus, etc.
As some members have already pointed out, many of us confuse CTC with pay and allowances, and hence feel that all the amounts mentioned in the breakup of the CTC are payable to the employee directly. However, this is not the case, as already explained by many.
From India, Mumbai
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As some members have already pointed out, many of us confuse CTC with pay and allowances, and hence feel that all the amounts mentioned in the breakup of the CTC are payable to the employee directly. However, this is not the case, as already explained by many.
From India, Mumbai
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Hi all,
It's a good discussion going on. As pointed out by many, not all payments mentioned in the CTC are directly paid in cash to the employee. CTC represents the cost incurred by the company in retaining the employee, which is correct. According to the law, you cannot exclude the payment of gratuity to an employee, but it also does not prohibit you from paying more than the minimum stated in the law.
If the payment terms are included in the salary structure agreed upon by the employer, then it becomes mandatory for the employer to follow. The wording in the appointment letter is crucial, so it is advisable to be clear when specifying it in the pay structure.
It would be helpful if anybody could provide information or references regarding any case law or court decisions on the discussed issue.
Regards,
Anshuman
From India, Jamshedpur
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It's a good discussion going on. As pointed out by many, not all payments mentioned in the CTC are directly paid in cash to the employee. CTC represents the cost incurred by the company in retaining the employee, which is correct. According to the law, you cannot exclude the payment of gratuity to an employee, but it also does not prohibit you from paying more than the minimum stated in the law.
If the payment terms are included in the salary structure agreed upon by the employer, then it becomes mandatory for the employer to follow. The wording in the appointment letter is crucial, so it is advisable to be clear when specifying it in the pay structure.
It would be helpful if anybody could provide information or references regarding any case law or court decisions on the discussed issue.
Regards,
Anshuman
From India, Jamshedpur
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Hi Ajee,
Since gratuity becomes due to a person subject to his completing five years of continuous service, a person cannot legally claim it if he separates before the eligibility period, although it might have been indicated in his CTC.
gnmattoo
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Since gratuity becomes due to a person subject to his completing five years of continuous service, a person cannot legally claim it if he separates before the eligibility period, although it might have been indicated in his CTC.
gnmattoo
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Dear Friends,
Gratuity in the meantime is only statutory. We have to follow the Payment of Gratuity Act. But if you want to do as per your company's rules, that is immaterial itself. As per the law, any person who has completed five years of service in a particular company will be eligible for gratuity. If you put it in CTC, any labor department people are asking how we can show it.
The formula is as follows: Basic + DA x 15/26 x Number of years of service (minimum 5 years).
For further details, please refer to the Act. (A brief note is attached with this.)
Regards,
PBS KUMAR
From India, Kakinada
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Gratuity in the meantime is only statutory. We have to follow the Payment of Gratuity Act. But if you want to do as per your company's rules, that is immaterial itself. As per the law, any person who has completed five years of service in a particular company will be eligible for gratuity. If you put it in CTC, any labor department people are asking how we can show it.
The formula is as follows: Basic + DA x 15/26 x Number of years of service (minimum 5 years).
For further details, please refer to the Act. (A brief note is attached with this.)
Regards,
PBS KUMAR
From India, Kakinada
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SBT Vs Asst. Labour Commissioner- Gratuity dismissed employee-LTS.PD F
FORM I(Application for Gratuity by an employee).doc