I want to know about how gratuity is decided by the employer and whether it is deducted from employees' monthly salary. If yes, where is the money deposited? If no, is gratuity paid from the employer's pocket? Can we give gratuity to employees who didn't complete 5 years of service?
From India, Gurgaon
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1From India, Gurgaon
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Contribution towards gratuity cannot be deducted from employees. It is the employer's liability to contribute to a gratuity fund annually, from which the gratuity amount shall be paid to exiting employees who become eligible under the Act. Though the Act stipulates payment to those eligible by completing 5 years (4 years + 240 days) of 'continuous service,' there is no impediment to disburse to those not completing this stipulation.
From India, Bangalore
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Contribution towards gratuity cannot be deducted from employees. It is the employer's liability to contribute to a gratuity fund annually, from which the gratuity amount shall be paid to exiting employees who become eligible under the Act. Though the Act stipulates payment to those eligible by completing 5 years (4 years + 240 days) of 'continuous service,' there is no impediment to disburse to those not completing this stipulation.
From India, Bangalore
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Dear friend,
I do hope that an understanding of the concepts of gratuity and CTC obtaining in the realm of employment, more particularly the statutory gratuity under the Payment of Gratuity Act, 1972, would certainly dispel the doubts raised in your post.
Gratuity is a one-time lump-sum terminal benefit payable to the employees on the termination of their employment after rendering a minimum qualifying continuous service of five years by an employer to whose establishment the Payment of Gratuity Act, 1972 becomes applicable. Since the amount of gratuity thus payable is an exclusive statutory liability of the employer, the employees have no monetary contribution from their side. The amount of gratuity payable is calculated based on the last drawn wages/salary of the employee and the total number of qualifying service rendered in the same establishment. Thus, it would be a heavy drain from the employer's pocket on the day it becomes due. Therefore, in order to eliminate the risk of the inability of the employer to pay it when the occasion arises, the PG Act, 1972 requires every employer to take up a compulsory insurance policy in this regard.
Cost of employment of an employee, on the other hand, denotes the sum total of expenses quantifiable in monetary terms and incurred by the employer from recruitment to the termination of the contract of employment. It includes the gross salary comprising basic pay and all other allowances payable under the terms of the contract of employment, statutory contributions payable by the employer, annual payments like statutory bonus, all other fringe benefits offered and paid as a measure of employee retention, and so on. Thus, the sum total of all these is projected in the CTC to make the offer of employment more attractive.
Therefore, under this notion -
CTC = Contractual Gross wages & all allowances + Employer's Statutory monetary liabilities + Contractual liabilities.
Hence, all the items mentioned in the CTC are expenses actually incurred towards the employee from the employer's perspective. So, there is no question of deduction from the actual gross monthly wages payable to the employee except statutory employees' contributions like EPF and ESI. In fact, such periodical contributions made by the employer would come to fruition only when the occasion for its payment to the employee arises.
From India, Salem
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I do hope that an understanding of the concepts of gratuity and CTC obtaining in the realm of employment, more particularly the statutory gratuity under the Payment of Gratuity Act, 1972, would certainly dispel the doubts raised in your post.
Gratuity is a one-time lump-sum terminal benefit payable to the employees on the termination of their employment after rendering a minimum qualifying continuous service of five years by an employer to whose establishment the Payment of Gratuity Act, 1972 becomes applicable. Since the amount of gratuity thus payable is an exclusive statutory liability of the employer, the employees have no monetary contribution from their side. The amount of gratuity payable is calculated based on the last drawn wages/salary of the employee and the total number of qualifying service rendered in the same establishment. Thus, it would be a heavy drain from the employer's pocket on the day it becomes due. Therefore, in order to eliminate the risk of the inability of the employer to pay it when the occasion arises, the PG Act, 1972 requires every employer to take up a compulsory insurance policy in this regard.
Cost of employment of an employee, on the other hand, denotes the sum total of expenses quantifiable in monetary terms and incurred by the employer from recruitment to the termination of the contract of employment. It includes the gross salary comprising basic pay and all other allowances payable under the terms of the contract of employment, statutory contributions payable by the employer, annual payments like statutory bonus, all other fringe benefits offered and paid as a measure of employee retention, and so on. Thus, the sum total of all these is projected in the CTC to make the offer of employment more attractive.
Therefore, under this notion -
CTC = Contractual Gross wages & all allowances + Employer's Statutory monetary liabilities + Contractual liabilities.
Hence, all the items mentioned in the CTC are expenses actually incurred towards the employee from the employer's perspective. So, there is no question of deduction from the actual gross monthly wages payable to the employee except statutory employees' contributions like EPF and ESI. In fact, such periodical contributions made by the employer would come to fruition only when the occasion for its payment to the employee arises.
From India, Salem
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The term CTC should not be confused with the term SALARY. The words "deducted from employees" imply a lack of clarity about the CTC concept. It is actually "not paid" to employees who are "not entitled". The payment of gratuity is subject to entitlement as per statutory provisions.
CTC of employees is calculated for costing purposes, to make appropriate provisions for employee costs in the books of accounts.
Scenario 1: Gratuity is included in CTC, but employees leave before completing 5 years of service, and hence don't receive gratuity payment. Projected EBITDA is not affected.
Scenario 2: Gratuity is not included in CTC, but employees complete 5 years of service and hence receive gratuity payment. Projected EBITDA is AFFECTED. No company wants that to happen.
Regards, Jaspreet Singh Janeja
From India, Chandigarh
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CTC of employees is calculated for costing purposes, to make appropriate provisions for employee costs in the books of accounts.
Scenario 1: Gratuity is included in CTC, but employees leave before completing 5 years of service, and hence don't receive gratuity payment. Projected EBITDA is not affected.
Scenario 2: Gratuity is not included in CTC, but employees complete 5 years of service and hence receive gratuity payment. Projected EBITDA is AFFECTED. No company wants that to happen.
Regards, Jaspreet Singh Janeja
From India, Chandigarh
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Above all, to be clear, payment of Gratuity is a statutory benefit payable by an employer to every eligible employee. It is an obligation or liability, whether the employee concerned is under CTC or any other pattern, irrespective of whether mentioned therein or not. Moreover, this is an "exclusive liability" of the employer, and therefore, no contribution from the concerned employee is necessary. Therefore, "gratuity" liability should not be confused with that of EPF/ESI, which are contributory on both sides.
From India, Bangalore
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From India, Bangalore
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