Dear Friend,
Business is a game of costs, which ultimately ends up with either profit or loss. The Cost to Company (CTC) is nothing but a hypothetical cost that includes everything we receive directly or indirectly, whether in cash, kind, or services.
Gratuity is one of the costs that has to be incurred per employee by the business on completion of terms as envisaged under the law. This amount is paid by the business but is not a charity by the proprietor.
Now, will the employee receive any amount if they leave the job before becoming eligible for gratuity? Is there any deduction from their monthly salary towards gratuity? If not, then the answer is no.
I hope this clarifies your doubts.
From India, Mumbai
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650Business is a game of costs, which ultimately ends up with either profit or loss. The Cost to Company (CTC) is nothing but a hypothetical cost that includes everything we receive directly or indirectly, whether in cash, kind, or services.
Gratuity is one of the costs that has to be incurred per employee by the business on completion of terms as envisaged under the law. This amount is paid by the business but is not a charity by the proprietor.
Now, will the employee receive any amount if they leave the job before becoming eligible for gratuity? Is there any deduction from their monthly salary towards gratuity? If not, then the answer is no.
I hope this clarifies your doubts.
From India, Mumbai
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Dear all,
Of course, it's a repeated subject matter, but still, I feel there should be legislation to favor the employees so that taking shelter under the provisions of the Gratuity Act should be done away with.
It's obvious that every employee's gratuity due on completion of one year of continuous service is taken for the purpose of CTC and accounted in the firm's books as a 'Liability towards the employee' on an accrual basis. But at the same time, when the very same employee leaves the firm without completing 5 years of continuous service, he/she is neither paid what gratuity is accounted for due for his service nor transferred to the subsequent employer like EPF for the simple reason that the Gratuity Act does not provide for such an arrangement. Thus, the employer writes back the unpaid gratuity which, in effect, is "an unjust enrichment" in the eye of the law and gets the benefit. In this way, the employee is deprived of his just due, which is against the principle of natural justice. I strongly feel all the labor/employees' organizations should write to the Government of India and build up a strong case for bringing in an amendment to this provision paving the way at least to transfer the accrued gratuity to the next employer if and when he/she joins another firm/employer like being done in the case of EPF.
From India, Bangalore
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Of course, it's a repeated subject matter, but still, I feel there should be legislation to favor the employees so that taking shelter under the provisions of the Gratuity Act should be done away with.
It's obvious that every employee's gratuity due on completion of one year of continuous service is taken for the purpose of CTC and accounted in the firm's books as a 'Liability towards the employee' on an accrual basis. But at the same time, when the very same employee leaves the firm without completing 5 years of continuous service, he/she is neither paid what gratuity is accounted for due for his service nor transferred to the subsequent employer like EPF for the simple reason that the Gratuity Act does not provide for such an arrangement. Thus, the employer writes back the unpaid gratuity which, in effect, is "an unjust enrichment" in the eye of the law and gets the benefit. In this way, the employee is deprived of his just due, which is against the principle of natural justice. I strongly feel all the labor/employees' organizations should write to the Government of India and build up a strong case for bringing in an amendment to this provision paving the way at least to transfer the accrued gratuity to the next employer if and when he/she joins another firm/employer like being done in the case of EPF.
From India, Bangalore
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Dear Kumar ji,
There is already a demand by unions to remove the conditions requiring (i) at least 10 employees in an establishment and (ii) a minimum of five years of service for the payment of gratuity. Additionally, there are recommendations and proposals to eliminate the 5-year service clause for gratuity eligibility and to allow the transfer of gratuity benefits when an employee changes jobs.
According to the draft code on Social Security and Welfare, gratuity will become contributory. Every employee will contribute 2% towards gratuity, and the accumulation will be transferred when the employee changes jobs.
From India, Mumbai
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There is already a demand by unions to remove the conditions requiring (i) at least 10 employees in an establishment and (ii) a minimum of five years of service for the payment of gratuity. Additionally, there are recommendations and proposals to eliminate the 5-year service clause for gratuity eligibility and to allow the transfer of gratuity benefits when an employee changes jobs.
According to the draft code on Social Security and Welfare, gratuity will become contributory. Every employee will contribute 2% towards gratuity, and the accumulation will be transferred when the employee changes jobs.
From India, Mumbai
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We have been reading about certain modifications in the gratuity administration, both in the government and private sector, proposing automatic revision in the upper limit of gratuity linked with wage levels by a new formula. Currently, the limit has been increased from 10 lakhs to 20 lakhs. Additionally, in the Pay Commission recommendations, this formula is being emphasized for automatic revision. Learned members are encouraged to discuss this further. However, I have not observed any tangible progress in the direction indicated above by Mr. Keshav.
From India, Bangalore
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From India, Bangalore
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If the Gratuity is considered as part of CTC and Salary is reduced to the extent of Gratuity deduction, no employee will ever want to complete 5 years for the sake of the extra benefit of Gratuity. When an employee is leaving the company, the deduction will automatically be credited in FnF as Exgratia. Doesn't the Gratuity payment lose its value as it doesn't even matter if it's paid after 5 years or before 5 years.
From India, Bengaluru
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From India, Bengaluru
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Dear Umakanthan Sir,
If CTC is a part of gratuity, and the employee has left the job before 5 years, will the employer pay the gratuity amount in full and final settlement or not? This is important to clarify as the employer deducts gratuity from our package.
Thank you.
From India, New Delhi
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If CTC is a part of gratuity, and the employee has left the job before 5 years, will the employer pay the gratuity amount in full and final settlement or not? This is important to clarify as the employer deducts gratuity from our package.
Thank you.
From India, New Delhi
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Dear Devendra,
In fact, your question reflects the general confusion prevailing in the minds of employees whose compensation package is shown by the employers in CTC format. Once again, it is to be reiterated and remembered that CTC is only an accounting tool projecting the overall annual expenses to be incurred by the employer in respect of the employee. Both in content and form, it is a mere statement of the total annual cost of employment per employee - that's all. As such, it implies that the items payable actually in the form of money and/or to be extended in the form of benefits which can be computed in terms of money would materialize only on the fulfillment of the conditions by the employee either statutory or contractual.
If analyzed in this backdrop, the actuarial contribution made by the employer to a gratuity fund is an expense from his cost perspective and therefore only shown in the package. No contribution to gratuity is deducted from your monthly salary. Even then, you are entitled to it only when you complete not less than five years of continuous service as stipulated in the PG Act, 1972.
From India, Salem
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In fact, your question reflects the general confusion prevailing in the minds of employees whose compensation package is shown by the employers in CTC format. Once again, it is to be reiterated and remembered that CTC is only an accounting tool projecting the overall annual expenses to be incurred by the employer in respect of the employee. Both in content and form, it is a mere statement of the total annual cost of employment per employee - that's all. As such, it implies that the items payable actually in the form of money and/or to be extended in the form of benefits which can be computed in terms of money would materialize only on the fulfillment of the conditions by the employee either statutory or contractual.
If analyzed in this backdrop, the actuarial contribution made by the employer to a gratuity fund is an expense from his cost perspective and therefore only shown in the package. No contribution to gratuity is deducted from your monthly salary. Even then, you are entitled to it only when you complete not less than five years of continuous service as stipulated in the PG Act, 1972.
From India, Salem
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(Fact Checked)-The user's reply is correct based on labor laws and regulations regarding gratuity. There is no amendment needed. (1 Acknowledge point)
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Devendra,
If you are still confused, think of CTC like a budget for the employee. If some part of the budgeted expense is not spent (like gratuity not legally due), will the company still give it? Not really. It will become a positive/favorable variance in the budget.
From India, Mumbai
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If you are still confused, think of CTC like a budget for the employee. If some part of the budgeted expense is not spent (like gratuity not legally due), will the company still give it? Not really. It will become a positive/favorable variance in the budget.
From India, Mumbai
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(Fact Checked)-The reply provided is correct. Gratuities should not be included in CTC as they are a statutory benefit not paid by the employer unless legally due. (1 Acknowledge point)
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CiteHR.AI
(Fact Checked)-The user reply contains accurate information regarding the proposed changes related to gratuity in the draft code on Social Security and Welfare, including the contributory nature and potential amendments to the service duration requirement. Well done! (1 Acknowledge point)