Hi, I am planning to implement a Gratuity fund in my organization. Could you please clarify the following doubts?
1- Is Gratuity a part of an employee's CTC? If yes, can we show it on the payslip as a deduction?
2- Is it mandatory for the employer to maintain a Gratuity Fund with an insurance company?
3- We have almost 50 to 60 employees. Very few employees complete five years of service with the organization, so my employer wants to pay them directly at the time of separation. He is not showing interest in maintaining a Gratuity scheme with any other organization. Is this correct?
Your earliest reply will be highly appreciated. Thanks...
From India, Hyderabad
Acknowledge(0)
Amend(0)
1- Is Gratuity a part of an employee's CTC? If yes, can we show it on the payslip as a deduction?
2- Is it mandatory for the employer to maintain a Gratuity Fund with an insurance company?
3- We have almost 50 to 60 employees. Very few employees complete five years of service with the organization, so my employer wants to pay them directly at the time of separation. He is not showing interest in maintaining a Gratuity scheme with any other organization. Is this correct?
Your earliest reply will be highly appreciated. Thanks...
From India, Hyderabad
Acknowledge(0)Amend(0)
The topic of gratuity has been well covered in this forum. I advise you to use the search button to check out older articles. Have you read the Payment of Gratuity Act 1972? Have you read the Payment of Gratuity Rules, 1972? Kindly go through these vital laws. If you still have specific doubts, learned members will clarify.
From India, Pune
Acknowledge(0)Amend(0)
3251From India, Pune
Acknowledge(0)Amend(0)
Hi KT017,
Gratuity is considered part of CTC by employers because they either make a provision for payment of Gratuity or contribute to a Gratuity fund.
It's not mandatory for employers to maintain a Gratuity fund; it's only optional.
Your employer can opt to pay Gratuity to employees directly.
The only advantage of maintaining a Gratuity fund is that if you pay a marginal risk premium, Gratuity is paid by the insurance company in the event the employee dies while in employment, considering the service from the Date of Joining until the date he/she would have superannuated from service if he/she had been alive. Normally, if the employer pays Gratuity directly, it will be restricted from the Date of Joining until the date of death.
Please remember, the insurance companies pay Gratuity only from the fund contributed by you each year. If the Gratuity payable is greater than the fund maintained by you, the insurance companies will deny the payment of Gratuity. In other words, the insurance companies make Gratuity payment to the extent the fund is being maintained with it by the employer. For this purpose, the insurance company computes an actuarial valuation every year and advises the employer to top up the fund to ensure Gratuity payments to all employees without any hassle.
Regards,
M.V. Kannan
From India, Madras
Acknowledge(0)Amend(0)
Gratuity is considered part of CTC by employers because they either make a provision for payment of Gratuity or contribute to a Gratuity fund.
It's not mandatory for employers to maintain a Gratuity fund; it's only optional.
Your employer can opt to pay Gratuity to employees directly.
The only advantage of maintaining a Gratuity fund is that if you pay a marginal risk premium, Gratuity is paid by the insurance company in the event the employee dies while in employment, considering the service from the Date of Joining until the date he/she would have superannuated from service if he/she had been alive. Normally, if the employer pays Gratuity directly, it will be restricted from the Date of Joining until the date of death.
Please remember, the insurance companies pay Gratuity only from the fund contributed by you each year. If the Gratuity payable is greater than the fund maintained by you, the insurance companies will deny the payment of Gratuity. In other words, the insurance companies make Gratuity payment to the extent the fund is being maintained with it by the employer. For this purpose, the insurance company computes an actuarial valuation every year and advises the employer to top up the fund to ensure Gratuity payments to all employees without any hassle.
Regards,
M.V. Kannan
From India, Madras
Acknowledge(0)Amend(0)
1. No, Gratuity is not a part of CTC. No, we cannot show it on the pay slip.
2. Yes, it is mandatory to buy the Gratuity policy from LIC or any other authorized insurance company.
3. No, it is not correct. We have to maintain the Gratuity fund as per the Labour Department. Irrespective of whether an employee completes 5 years or not, from the day an employee joins the organization, they have to be included in the Gratuity scheme by filling out Form F (nomination). Every month, Form 5 and Form 10 should be submitted to the insurance company to update the employee records.
From India, Ahmedabad
Acknowledge(0)Amend(0)
2. Yes, it is mandatory to buy the Gratuity policy from LIC or any other authorized insurance company.
3. No, it is not correct. We have to maintain the Gratuity fund as per the Labour Department. Irrespective of whether an employee completes 5 years or not, from the day an employee joins the organization, they have to be included in the Gratuity scheme by filling out Form F (nomination). Every month, Form 5 and Form 10 should be submitted to the insurance company to update the employee records.
From India, Ahmedabad
Acknowledge(0)Amend(0)
Gratuity may be a part of CTC, but it should not be shown in the payslip and not deductible from the salary. It is not mandatory to maintain the gratuity fund with third parties like LIC, etc. It is optional for the employer.
Thirdly, your employer is correct. It can be paid directly by the employer to the employee at the time of separation if he fulfills the other conditions as per the Payment of Gratuity Act.
From India, Bangalore
Acknowledge(0)Amend(0)
Thirdly, your employer is correct. It can be paid directly by the employer to the employee at the time of separation if he fulfills the other conditions as per the Payment of Gratuity Act.
From India, Bangalore
Acknowledge(0)Amend(0)
Hi,
I see the thread on the Gratuity Payment. Can gratuity amount be shown in the salary break-up of CTC, as this is also part of the employer's payment when it comes to the contribution from the company to the employee? Please advise.
Regards,
Swaminathan R
From India, Madras
Acknowledge(0)Amend(0)
I see the thread on the Gratuity Payment. Can gratuity amount be shown in the salary break-up of CTC, as this is also part of the employer's payment when it comes to the contribution from the company to the employee? Please advise.
Regards,
Swaminathan R
From India, Madras
Acknowledge(0)Amend(0)
Gratuity contribution cannot be shown in a payslip, but in my opinion, it can be shown as part of CTC computation for reasons already explained. I reiterate it's not mandatory to maintain a policy for Gratuity with an insurance company. If the employer opts to pay directly, he can do so.
Regards, M.V. Kannan
From India, Madras
Acknowledge(0)Amend(0)
Regards, M.V. Kannan
From India, Madras
Acknowledge(0)Amend(0)
I reiterate it's not mandatory to maintain a policy for Gratuity with an insurance company. If the employer opts to pay directly, he can do so.
Section 4A of the Gratuity Act makes it mandatory to have insurance. Kindly clarify.
From India, Pune
Acknowledge(0)Amend(0)
Section 4A of the Gratuity Act makes it mandatory to have insurance. Kindly clarify.
From India, Pune
Acknowledge(0)Amend(0)
The Section 4A of the Payment of Gratuity Act provides for compulsory insurance of the gratuity fund. However, the notification making this section mandatory should come from the appropriate government. I understand that many states are yet to issue such notifications. In states where such a notification does not exist, making the gratuity fund linked to LIC is not mandatory. The procedures under the accounting practices would be sufficient. Even in states where compulsory insurance of the gratuity fund is enforced, the appropriate government shall exempt organizations that have been maintaining an approved gratuity fund and those employing not less than 500 employees with an approved gratuity fund from the operation of this section.
However, linking the gratuity to LIC's death cum gratuity scheme is beneficial to both the employer and employees for various reasons. For example, the employer will be able to pay gratuity without affecting its working capital, and the dependents of a deceased employee will be able to receive superannuation gratuity based on his date of superannuation, provided the same is opted for by the employer, etc.
If your state government has not notified the effective date of enforcement of Section 4A, you can continue to maintain your own gratuity fund. On the other hand, if the state government has made it enforceable, you must comply. If the practice is that your employees leave before becoming qualified to receive gratuity, the amount invested by the company in the gratuity fund will become an asset for the company only, and any additions to the fund will be made only after determining the probable liability in terms of gratuity in the coming years. Therefore, do not consider the fund solely as an obligation.
Madhu. T.K.
From India, Kannur
Acknowledge(0)Amend(0)
However, linking the gratuity to LIC's death cum gratuity scheme is beneficial to both the employer and employees for various reasons. For example, the employer will be able to pay gratuity without affecting its working capital, and the dependents of a deceased employee will be able to receive superannuation gratuity based on his date of superannuation, provided the same is opted for by the employer, etc.
If your state government has not notified the effective date of enforcement of Section 4A, you can continue to maintain your own gratuity fund. On the other hand, if the state government has made it enforceable, you must comply. If the practice is that your employees leave before becoming qualified to receive gratuity, the amount invested by the company in the gratuity fund will become an asset for the company only, and any additions to the fund will be made only after determining the probable liability in terms of gratuity in the coming years. Therefore, do not consider the fund solely as an obligation.
Madhu. T.K.
From India, Kannur
Acknowledge(0)Amend(0)
Section 4A in The Payment of Gratuity Act, 1972
19 [4A. Compulsory insurance.—
(1)Â With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer: Provided that different dates may be appointed for different establishments or class of establishments or for different areas.
(2)Â The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).
On this basis I made the statement
From India, Madras
Acknowledge(0)Amend(0)
19 [4A. Compulsory insurance.—
(1)Â With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer: Provided that different dates may be appointed for different establishments or class of establishments or for different areas.
(2)Â The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).
On this basis I made the statement
From India, Madras
Acknowledge(0)Amend(0)Engage with peers to discuss and resolve work and business challenges collaboratively - share and document your knowledge. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Join & Be Part Of Our Community.
Manpower Planning Form(1).xls
FORM-F-NOMINATI ON OF GRATUITY.pdf
Gratuity Form I.doc