CTC is used as one of the components for HR budgeting. It is also a motivational tactic to show big figures of CTC where the candidates get carried away and join and later comprises or leave the Org.
Yes, you are right, there are labor court cases claiming gratuity deductions as non-statutory deductions as part of CTC and therefore liable for payment of gratuity. International companies pay gratuity annually in Mumbai. However, statutory gratuity is payable after an employee completes 4 years and 240 days of continuous service.
From India, Mumbai
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9Yes, you are right, there are labor court cases claiming gratuity deductions as non-statutory deductions as part of CTC and therefore liable for payment of gratuity. International companies pay gratuity annually in Mumbai. However, statutory gratuity is payable after an employee completes 4 years and 240 days of continuous service.
From India, Mumbai
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Dear friends,
It's high time everyone should be clear on some of the facts already discussed here by learned members. To summarize:
1. Indian laws don't offer any interpretations about CTC.
2. Practicing, imposing, or accepting and interpreting CTC is the prerogative of employers and employees at one's own cost and risk.
3. Even courts have not spelled out any codifications on CTC.
4. Though generally gratuity is considered as part of CTC, there is no hard and fast rule on whether to include or exclude it.
5. Even the Gratuity Act also doesn't mention anything about CTC.
6. Regardless of whether or not included in CTC, gratuity is payable when an employee leaves an employer only after completing a qualifying "continuous service" of 5 years (4 years + 240 days in the 5th year) with the same employer (except when forfeited on lawful grounds).
7. Even when included in CTC, gratuity is not payable monthly as it is not part of the gross salary or take-home salary.
8. There is no legal obligation for an employer to open a bank account and invest the gratuity fund on a monthly basis. However, it's the legal responsibility of an employer to create adequate provisions/liability towards gratuity in their Annual Accounts, which is compulsory to defray gratuity obligations.
9. In cases of non-payment of gratuity to a legally eligible employee, the employee can seek intervention of appropriate officers and legal remedies. In such cases, the employer is liable to pay overdue interest on the delay in payment of gratuity at prescribed rates. Therefore, there cannot be a loss even when payment is delayed.
10. Above all, gratuity is not contributory like EPF from employees' side as employers have to contribute 100%, including overdue interest.
Individual queries, if any, on certain complications can be addressed.
From India, Bangalore
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It's high time everyone should be clear on some of the facts already discussed here by learned members. To summarize:
1. Indian laws don't offer any interpretations about CTC.
2. Practicing, imposing, or accepting and interpreting CTC is the prerogative of employers and employees at one's own cost and risk.
3. Even courts have not spelled out any codifications on CTC.
4. Though generally gratuity is considered as part of CTC, there is no hard and fast rule on whether to include or exclude it.
5. Even the Gratuity Act also doesn't mention anything about CTC.
6. Regardless of whether or not included in CTC, gratuity is payable when an employee leaves an employer only after completing a qualifying "continuous service" of 5 years (4 years + 240 days in the 5th year) with the same employer (except when forfeited on lawful grounds).
7. Even when included in CTC, gratuity is not payable monthly as it is not part of the gross salary or take-home salary.
8. There is no legal obligation for an employer to open a bank account and invest the gratuity fund on a monthly basis. However, it's the legal responsibility of an employer to create adequate provisions/liability towards gratuity in their Annual Accounts, which is compulsory to defray gratuity obligations.
9. In cases of non-payment of gratuity to a legally eligible employee, the employee can seek intervention of appropriate officers and legal remedies. In such cases, the employer is liable to pay overdue interest on the delay in payment of gratuity at prescribed rates. Therefore, there cannot be a loss even when payment is delayed.
10. Above all, gratuity is not contributory like EPF from employees' side as employers have to contribute 100%, including overdue interest.
Individual queries, if any, on certain complications can be addressed.
From India, Bangalore
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Dear All, Gratuity is part of CTC and if you were exit before complete of 5 years then as per compliance it will payout as "Exgratia" Regards Dhananjoy Kumar
From India, Faridabad
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From India, Faridabad
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If CTC break up simply says Gratuity, then, in my opinion, the employee has a right to get Gratuity as mentioned in the Offer letter. In addition, if he or she completes the minimum stipulated period under the Payment of Gratuity Act, then he or she is eligible to receive Gratuity under the Act as well.
Alternatively, if the CTC description clearly says Gratuity under Payment of Gratuity Act, then the employee is eligible only under the Payment of Gratuity Act after completing the stipulated service. However, this has not been tested in any court as of now. If CTC description simply says Gratuity, then the employee can only move to Civil Court and cannot file a petition under the Payment of Gratuity Act.
There are many judgments on wages and salaries but to my knowledge, there is no judgment on the term CTC as it has no place in Labour Law as of date. One needs to move to a civil court to get the correct verdict on this subject. However, I always advise my clients to use the terminology Gratuity under Payment of Gratuity Act when giving the break-up of CTC.
T. Sivasankaran
From India, Chennai
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Alternatively, if the CTC description clearly says Gratuity under Payment of Gratuity Act, then the employee is eligible only under the Payment of Gratuity Act after completing the stipulated service. However, this has not been tested in any court as of now. If CTC description simply says Gratuity, then the employee can only move to Civil Court and cannot file a petition under the Payment of Gratuity Act.
There are many judgments on wages and salaries but to my knowledge, there is no judgment on the term CTC as it has no place in Labour Law as of date. One needs to move to a civil court to get the correct verdict on this subject. However, I always advise my clients to use the terminology Gratuity under Payment of Gratuity Act when giving the break-up of CTC.
T. Sivasankaran
From India, Chennai
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Answer is not clear yes or no.
In CTC concept, generally there is notional debit of certain amount from CTC. Because the amount agreed as remuneration is not being paid but kept aside to be paid towards gratuity. While in other cases, in older pay structure philosophy which is also known as GPA or Gross per Annum, where the gratuity is Benefit and was being paid over and above the agreed remuneration.
Gratuity is loyalty bonus, and if the amount towards loyalty bonus is from employee’s committed CTC, ethically companies are bound to pay irrespective of the eligibility tenure, yeah it may not be termed as Gratuity but can be said as Ex gratia. On ex gratia there will not be any Income Tax relief.
So it depends on the company’s policy, progressive and ethical companies if makes debits/provision towards Gratuity from employees' CTC, they do pay as ex gratia prior to 5 years’ tenure and as Gratuity upon completion of 5 years.
Shailesh Parikh
9998971065
From India, Mumbai
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In CTC concept, generally there is notional debit of certain amount from CTC. Because the amount agreed as remuneration is not being paid but kept aside to be paid towards gratuity. While in other cases, in older pay structure philosophy which is also known as GPA or Gross per Annum, where the gratuity is Benefit and was being paid over and above the agreed remuneration.
Gratuity is loyalty bonus, and if the amount towards loyalty bonus is from employee’s committed CTC, ethically companies are bound to pay irrespective of the eligibility tenure, yeah it may not be termed as Gratuity but can be said as Ex gratia. On ex gratia there will not be any Income Tax relief.
So it depends on the company’s policy, progressive and ethical companies if makes debits/provision towards Gratuity from employees' CTC, they do pay as ex gratia prior to 5 years’ tenure and as Gratuity upon completion of 5 years.
Shailesh Parikh
9998971065
From India, Mumbai
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Friends,
Could you post/share info of any instances of gratuity when followed under CTC pattern was paid in cash/cheque/cr. to a/c or in any manner by in any co/firm? Obviously, employers will have to pay gratuity to those employees when they leave their firm if the employees have completed 5 years of continuous service as per the Gratuity Act, and there is no confusion.
Whereas, what we are deliberating is in case employees leave firms before completing 5 years of qualifying service for gratuity, and if so, how they are paid the component towards gratuity forming part of the CTC pattern. We have been believing in such instances; these firms do not pay anything as gratuity, and thus concerned employees are deprived of their share of CTC.
Hypothetically, assume Mr. X, throughout his career, say till his superannuation age of 60, went on changing his employers. In every such changeover, before completing 5 years, and therefore Mr. X never tasted any gratuity in his lifetime just because i) he didn't complete 5 years with any of his employers and ii) all his employers followed only CTC. Does this fit into logic? What's the solution?
From India, Bangalore
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Could you post/share info of any instances of gratuity when followed under CTC pattern was paid in cash/cheque/cr. to a/c or in any manner by in any co/firm? Obviously, employers will have to pay gratuity to those employees when they leave their firm if the employees have completed 5 years of continuous service as per the Gratuity Act, and there is no confusion.
Whereas, what we are deliberating is in case employees leave firms before completing 5 years of qualifying service for gratuity, and if so, how they are paid the component towards gratuity forming part of the CTC pattern. We have been believing in such instances; these firms do not pay anything as gratuity, and thus concerned employees are deprived of their share of CTC.
Hypothetically, assume Mr. X, throughout his career, say till his superannuation age of 60, went on changing his employers. In every such changeover, before completing 5 years, and therefore Mr. X never tasted any gratuity in his lifetime just because i) he didn't complete 5 years with any of his employers and ii) all his employers followed only CTC. Does this fit into logic? What's the solution?
From India, Bangalore
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Dear All,
Appreciate inputs from various learned members on gratuity. However, the following may please be clarified:
1. Where is it mentioned that an employee with 4 years and 240 days of service will be entitled to gratuity? This is debatable. Is it through a high court decision (Chennai, if I remember correctly)? If so, is a decision of the high court applicable only to the particular state or is it applicable to all over India?
2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years, else it will be for 5 years.
3. If the term "240 days" is used, does it include weekly offs, holidays, and leaves, or is it based on working days or calendar days? There is no clarity on this issue.
Can somebody please shed light on the above?
Thanks.
From India, Visakhapatnam
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Appreciate inputs from various learned members on gratuity. However, the following may please be clarified:
1. Where is it mentioned that an employee with 4 years and 240 days of service will be entitled to gratuity? This is debatable. Is it through a high court decision (Chennai, if I remember correctly)? If so, is a decision of the high court applicable only to the particular state or is it applicable to all over India?
2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years, else it will be for 5 years.
3. If the term "240 days" is used, does it include weekly offs, holidays, and leaves, or is it based on working days or calendar days? There is no clarity on this issue.
Can somebody please shed light on the above?
Thanks.
From India, Visakhapatnam
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1. Where is it mentioned that an employee with 4 years and 240 days of service will be entitled to gratuity? This is debatable. Is it through a high court decision (Chennai, if I remember correctly)? If so, is a decision of the high court applicable only to the particular state or is it applicable to all over India? - Applicable only for the respective state, i.e., Tamil Nadu
2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years; otherwise, it will be for 5 years. - Correct
3. If the term "240 days" is used, does it include weekly offs, holidays, leaves, or is it based on working days or calendar days? There is no clarity on this. - All days including Paid Holiday, Weekly Off, All Authorized leave are covered to calculate 240 days / 5 years of service
From India, Pune
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2. In general, it is 5 years of continuous service for entitlement, where 5 years and beyond 6 months is considered 6 years; otherwise, it will be for 5 years. - Correct
3. If the term "240 days" is used, does it include weekly offs, holidays, leaves, or is it based on working days or calendar days? There is no clarity on this. - All days including Paid Holiday, Weekly Off, All Authorized leave are covered to calculate 240 days / 5 years of service
From India, Pune
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Dear friends,
This part of interpretation is being discussed in this forum almost for a decade now. Seekers, please take atleast a few minutes to refresh past postings on the matter being discussed. This will avoid oft-repeated matters raised all over again. Pl.be informed
e judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10months 11days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."
The gratuity act says continued services. The continuity in service is clarified by SC a year means 240 working days in a different context but nothing is stopping you to adopt the sum & substance of the concept while applying. Hence , an employee who has completed 4 years 8 months and 18 days continuously without any break is eligible for Gratuity under the Act.
For further reading use this link-
https://www.citehr.com/108564-sc-jud...-download.html
From India, Bangalore
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This part of interpretation is being discussed in this forum almost for a decade now. Seekers, please take atleast a few minutes to refresh past postings on the matter being discussed. This will avoid oft-repeated matters raised all over again. Pl.be informed
e judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10months 11days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."
The gratuity act says continued services. The continuity in service is clarified by SC a year means 240 working days in a different context but nothing is stopping you to adopt the sum & substance of the concept while applying. Hence , an employee who has completed 4 years 8 months and 18 days continuously without any break is eligible for Gratuity under the Act.
For further reading use this link-
https://www.citehr.com/108564-sc-jud...-download.html
From India, Bangalore
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Dear Mr. Kumar,
Thank you for your insight. Has the gratuity act been amended to the above effect? Has there been a gazette notification? I would appreciate if you have any information on this.
I think the answer is no. The interpretation of this is now left to individual employers. Barring a few companies, most companies would avoid extra outflow if the service is below 5 years.
In some cases, gratuity is shown under CTC as part of the employee's compensation. However, certain companies might pay, and a few others might not pay.
Thanks and warm regards.
From India, Visakhapatnam
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Thank you for your insight. Has the gratuity act been amended to the above effect? Has there been a gazette notification? I would appreciate if you have any information on this.
I think the answer is no. The interpretation of this is now left to individual employers. Barring a few companies, most companies would avoid extra outflow if the service is below 5 years.
In some cases, gratuity is shown under CTC as part of the employee's compensation. However, certain companies might pay, and a few others might not pay.
Thanks and warm regards.
From India, Visakhapatnam
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Payment of Gratuity Act, 1972 & The Rules.ppt
THE PAYMENT OF GRATUITY ACT 1972.doc