Dear Member, Is it legal to show gratuity as a part of CTC?
From India, Mumbai
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4From India, Mumbai
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Dear OSOURCEHR,
You need to first understand what CTC is. CTC is a concept; it is the cost to the company of an employee. The employer has to make provisions for Gratuity payment for every employee employed by him. He has to create a fund for Gratuity or opt for a Gratuity Policy for which he has to pay a premium. Therefore, it is a cost to him, and accordingly, he can add this cost to the CTC. There is no wrong in doing so. However, a question may arise that if an employee leaves his service before completing 5 years, the amount taken into CTC towards gratuity is to be refunded to the employee or not. In the draft code on Social Security, there is a provision for the employer's contribution towards the Gratuity Fund.
From India, Mumbai
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You need to first understand what CTC is. CTC is a concept; it is the cost to the company of an employee. The employer has to make provisions for Gratuity payment for every employee employed by him. He has to create a fund for Gratuity or opt for a Gratuity Policy for which he has to pay a premium. Therefore, it is a cost to him, and accordingly, he can add this cost to the CTC. There is no wrong in doing so. However, a question may arise that if an employee leaves his service before completing 5 years, the amount taken into CTC towards gratuity is to be refunded to the employee or not. In the draft code on Social Security, there is a provision for the employer's contribution towards the Gratuity Fund.
From India, Mumbai
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Dear Friend , Earlier, say early 2000 ,Gratuity was not part of CTC .But afterwords Industries add in the Package so that Employee will stay back . Regards , Y.R.Shirke
From India, Mumbai
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From India, Mumbai
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(Fact Check Failed/Partial)-The reply contains some inaccuracies. Gratuity can be included in CTC as per the Payment of Gratuity Act, 1972. It is not a recent addition for retention purposes.
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Gratuity is a statutory right of an employee who completes 5 years in the same organization and is a terminal benefit. The cost is to be borne by the employer and not the employee. Gratuity cannot be a part of CTC. If a company is making it a part of CTC, you can raise the issue before the controlling authority. A legal notice from a common lawyer representing all employees may be sufficient to emphasize the importance of this issue and prompt the release of the entire payment. Failure to release the payment may be considered a minor fraud.
However, you are eligible to receive the gratuity amount even if you have not completed 5 years of service. The amount paid by the company to the Group Gratuity Insurance Scheme is accumulated, and LIC pays interest on it. This fund is established to ensure the payment of gratuity to employees in case of death or disability. If this fund is not established, the company must cover the cost from its own resources.
Additionally, in the event of termination or resignation of an eligible employee, the payment is made from the fund, and the remaining amount continues to earn interest. After 5 years, the company is obligated to make a payment based on the gratuity formula. Considering the monthly contributions (either shown as part of CTC or collected from the employee), the total amount may exceed the calculated gratuity amount.
Companies that include gratuity as part of CTC provide the payment as a tax rebate or Ex. Gratia in the Full and Final settlement, even if an employee leaves before completing 5 years (or at 4 years 8 months or 6 months, as the case may be).
From India, Pune
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However, you are eligible to receive the gratuity amount even if you have not completed 5 years of service. The amount paid by the company to the Group Gratuity Insurance Scheme is accumulated, and LIC pays interest on it. This fund is established to ensure the payment of gratuity to employees in case of death or disability. If this fund is not established, the company must cover the cost from its own resources.
Additionally, in the event of termination or resignation of an eligible employee, the payment is made from the fund, and the remaining amount continues to earn interest. After 5 years, the company is obligated to make a payment based on the gratuity formula. Considering the monthly contributions (either shown as part of CTC or collected from the employee), the total amount may exceed the calculated gratuity amount.
Companies that include gratuity as part of CTC provide the payment as a tax rebate or Ex. Gratia in the Full and Final settlement, even if an employee leaves before completing 5 years (or at 4 years 8 months or 6 months, as the case may be).
From India, Pune
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(Fact Check Failed/Partial)-The information provided in the user reply is incorrect. Gratuity can indeed be a part of CTC as per the Payment of Gratuity Act, 1972. The act allows for the inclusion of gratuity as part of CTC. It is not considered illegal or a fraud to include gratuity in CTC.
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Dear friends,
The query is about the legality of showing gratuity as part of CTC of an employee or otherwise. In the first place, the element of legality or illegality comes into play only when anything is done or not done respectively according to the provisions of any law, either express or implied. As rightly observed by our learned member Mr. Korgaonkar, CTC is a concept adopted by the employer in the matter of compensation package to his employees. It is simply an index or accounting aid showing the overall expenses incurred by the employer per employee per annum in the matter of wage/salary fixation or any negotiation connected therewith. Gratuity, being a terminal benefit legally payable to an employee subject to the fulfillment of certain conditions of his/her service as well as exit, is certainly a part of the cost of employment incurred by the employer. So, adding the annual contribution of gratuity to CTC cannot be an infraction of any sort either legal or ethical in relation to the realm of employment, in as much as no monetary contribution is made by the employee. Even the statutorily-mandated employee contribution like ESIC, EPF does not affect the status of the employer's contribution in this regard as an expense incurred by him.
From India, Salem
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The query is about the legality of showing gratuity as part of CTC of an employee or otherwise. In the first place, the element of legality or illegality comes into play only when anything is done or not done respectively according to the provisions of any law, either express or implied. As rightly observed by our learned member Mr. Korgaonkar, CTC is a concept adopted by the employer in the matter of compensation package to his employees. It is simply an index or accounting aid showing the overall expenses incurred by the employer per employee per annum in the matter of wage/salary fixation or any negotiation connected therewith. Gratuity, being a terminal benefit legally payable to an employee subject to the fulfillment of certain conditions of his/her service as well as exit, is certainly a part of the cost of employment incurred by the employer. So, adding the annual contribution of gratuity to CTC cannot be an infraction of any sort either legal or ethical in relation to the realm of employment, in as much as no monetary contribution is made by the employee. Even the statutorily-mandated employee contribution like ESIC, EPF does not affect the status of the employer's contribution in this regard as an expense incurred by him.
From India, Salem
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(Fact Check Failed/Partial)-[response] Gratuity cannot be included in CTC as per law. It's a separate benefit. CTC should only include components paid directly to the employee.
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Dear Umakanthan ji,
Thank you very much for your support of my contention. There are very few members in this forum who can be counted on fingers to write logically and correctly, and you are one of them. I sometimes feel regret responding to the queries of the members, but when I receive support from members like you, I feel boosted.
I also regret noticing that in the HR fraternity, many of our brothers and sisters are unable to distinguish correctly between Salary and CTC. This forum has been a platform for discussing CTC extensively.
From India, Mumbai
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Thank you very much for your support of my contention. There are very few members in this forum who can be counted on fingers to write logically and correctly, and you are one of them. I sometimes feel regret responding to the queries of the members, but when I receive support from members like you, I feel boosted.
I also regret noticing that in the HR fraternity, many of our brothers and sisters are unable to distinguish correctly between Salary and CTC. This forum has been a platform for discussing CTC extensively.
From India, Mumbai
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(Fact Check Failed/Partial)-The user's reply does not address the legal aspect of showing gratuity as part of CTC and instead focuses on forum dynamics. It does not provide accurate information related to the original post.
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I still do not get it. Where in the Gratuity Act does it mention that it can be a part of the CTC? ANyhow, I believe I am getting ripped off.
From India, Kolkata
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From India, Kolkata
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(Fact Checked)-Gratuity can be part of CTC. As per the Payment of Gratuity Act 1972, employers can consider gratuity as part of CTC. Make sure it's clearly stated in the employment contract. (1 Acknowledge point)
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Dear Vishal,
I think that you would not have any difficulty in understanding the fact that CTC is a conceptual aid to determine or assess the employer's overall financial liability toward every hired position or job including salaries/wages and all other fringe benefits payable per employee per year. The various heads of such payments comprise of all statutory and non-statutory items. Every statutory payment, both direct and indirect like employer's contribution to EPF, ESI, etc., including its mode and method, has to be done not less than the norms prescribed in the respective Statute. It is not the concern of the statute to assess the overall financial commitment of the employers. You will not find the term "Cost To Company" in any Labour Law. It is only a presumptive assessment for the guidance of the employer and employees concerned for deciding the acceptable compensation package.
From India, Salem
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I think that you would not have any difficulty in understanding the fact that CTC is a conceptual aid to determine or assess the employer's overall financial liability toward every hired position or job including salaries/wages and all other fringe benefits payable per employee per year. The various heads of such payments comprise of all statutory and non-statutory items. Every statutory payment, both direct and indirect like employer's contribution to EPF, ESI, etc., including its mode and method, has to be done not less than the norms prescribed in the respective Statute. It is not the concern of the statute to assess the overall financial commitment of the employers. You will not find the term "Cost To Company" in any Labour Law. It is only a presumptive assessment for the guidance of the employer and employees concerned for deciding the acceptable compensation package.
From India, Salem
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(Fact Checked)-The user reply contains accurate information regarding Cost To Company (CTC) concept and its components. No corrections needed. (1 Acknowledge point)
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Dear Umakanthan sir,
If CTC includes gratuity and the employee has not completed the 5-year service period, then in this scenario, will the said employee not receive the gratuity regardless of its inclusion in CTC?
Please clarify.
Thanks,
Amit
From India, Jaipur
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If CTC includes gratuity and the employee has not completed the 5-year service period, then in this scenario, will the said employee not receive the gratuity regardless of its inclusion in CTC?
Please clarify.
Thanks,
Amit
From India, Jaipur
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(Fact Checked)-The inclusion of gratuity in CTC does not exempt employer from paying it if employee leaves before 5 years. Gratuity is still payable. Thank you for your question. (1 Acknowledge point)
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Dear Amit,
CTC comprises all expenses incurred by the employer towards the employment of the employee for their retention in the job as well as for the normal termination of their employment. As you are well aware, gratuity is a one-time lump sum terminal benefit strictly governed by the provisions of the Payment of Gratuity Act, 1972. Except in cases of death and disablement, eligibility for gratuity upon termination of employment arises from completing continuous service of not less than five years. Section 4-A of the Act mandates compulsory insurance for gratuity. The annual premium for insurance is calculated solely on an actuarial basis by the insurer and paid by the employer. Consequently, it automatically becomes part of the CTC regardless of whether the employee is ineligible to receive it due to not meeting the minimum qualifying service requirement.
From India, Salem
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CTC comprises all expenses incurred by the employer towards the employment of the employee for their retention in the job as well as for the normal termination of their employment. As you are well aware, gratuity is a one-time lump sum terminal benefit strictly governed by the provisions of the Payment of Gratuity Act, 1972. Except in cases of death and disablement, eligibility for gratuity upon termination of employment arises from completing continuous service of not less than five years. Section 4-A of the Act mandates compulsory insurance for gratuity. The annual premium for insurance is calculated solely on an actuarial basis by the insurer and paid by the employer. Consequently, it automatically becomes part of the CTC regardless of whether the employee is ineligible to receive it due to not meeting the minimum qualifying service requirement.
From India, Salem
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(Fact Checked)-The user reply contains accurate information regarding gratuity being a part of CTC due to the mandatory insurance requirement under the Payment of Gratuity Act, 1972. (1 Acknowledge point)
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(Fact Checked)-[The user reply correctly explains that gratuity can be included in the Cost to Company (CTC) as it is a cost borne by the employer. However, it is important to note that if an employee leaves before completing 5 years, any amount allocated towards gratuity in the CTC may need to be refunded to the employee. The mention of provisions in the draft code on Social Security is also relevant.] (1 Acknowledge point)