Hello, One of our employees resigned this week. He worked for us for 6 years.
Since last year we're having a 30% salary reduction. So in this case, the gratuity needs to be paid on the actual salary or on salary reduction? Please advice.
Thank you,
From India, Nagari
4Since last year we're having a 30% salary reduction. So in this case, the gratuity needs to be paid on the actual salary or on salary reduction? Please advice.
Thank you,
From India, Nagari
Dear Sandra,
What's the reason for salary reduction? As a temporary measure of austerity due to business reverses?
Whether the reduction was done by the Management unilaterally or by means of a bipartite agreement?
From India, Salem
What's the reason for salary reduction? As a temporary measure of austerity due to business reverses?
Whether the reduction was done by the Management unilaterally or by means of a bipartite agreement?
From India, Salem
Dear Umakanthan Sir, The reduction is only for a temporary period due to pandemic as there are no events happening. Thank you,
From India, Nagari
From India, Nagari
Dear Sandra,
Reduction of the existing salary of the employees is a complicated issue as it involves legal and ethical questions. Admittedly it is only a temporary measure of austerity due to pandemic situation. Instead of going without job, the employees might have meekly accepted the decision of your management is the ground reality.
Therefore, to avoid ethical and substantial legal questions, better for the management to pay gratuity on the last salary the employee would have received but for the temporary reduction.
From India, Salem
Reduction of the existing salary of the employees is a complicated issue as it involves legal and ethical questions. Admittedly it is only a temporary measure of austerity due to pandemic situation. Instead of going without job, the employees might have meekly accepted the decision of your management is the ground reality.
Therefore, to avoid ethical and substantial legal questions, better for the management to pay gratuity on the last salary the employee would have received but for the temporary reduction.
From India, Salem
So better to pay the gratuity on the actual salary and not on the salary reduction, correct Sir?
From India, Nagari
From India, Nagari
Yes, that’s the correct way of showing the employer’s gratitude to the employee who rendered his services in all weathers.
From India, Salem
From India, Salem
While it is the best to pay gratuity on full salary, the law actually says on the basis of last drawn salary.
Just as if the employee got increment just before resignation he will get higher gratuity, in the same way, he will get lower gratuity if he agreed to lower salary before resignation.
I am in fact curious what will happen with Gratuity Insurance of the type taken by LIC. Will LIC insist on lower payout in such a case?
From India, Mumbai
Just as if the employee got increment just before resignation he will get higher gratuity, in the same way, he will get lower gratuity if he agreed to lower salary before resignation.
I am in fact curious what will happen with Gratuity Insurance of the type taken by LIC. Will LIC insist on lower payout in such a case?
From India, Mumbai
Dear Saswata,
Your curiosity is quite genuine, logical and infact a legally valid one too.
Apart from the mandatory requirement u/s 4-A of the PGA,1972 which is yet to be given effect to enforcement by means notification by many State Governments, an insurance policy taken with the LIC in this regard covers the liability of the employer to pay gratuity under the Act when the occasion arises.
As you are well aware, the premium is calculated and collected on actuarial basis only based on the average salary payable to the employee during the preceding 12 months. As such, there is reason to believe that the short fall in the last drawn salary for whatever lawful reason would get automatically adjusted by the value of the actual maturity amount of the policy.
Even otherwise for the reason of salary cut during the last spell of the service of the employee like the one mentioned in the original post, if the Insurer is prepared to pay a lesser amount than the statutory amount of gratuity based on any lower rate of premium, still the employer is liable to make good the loss.
From India, Salem
Your curiosity is quite genuine, logical and infact a legally valid one too.
Apart from the mandatory requirement u/s 4-A of the PGA,1972 which is yet to be given effect to enforcement by means notification by many State Governments, an insurance policy taken with the LIC in this regard covers the liability of the employer to pay gratuity under the Act when the occasion arises.
As you are well aware, the premium is calculated and collected on actuarial basis only based on the average salary payable to the employee during the preceding 12 months. As such, there is reason to believe that the short fall in the last drawn salary for whatever lawful reason would get automatically adjusted by the value of the actual maturity amount of the policy.
Even otherwise for the reason of salary cut during the last spell of the service of the employee like the one mentioned in the original post, if the Insurer is prepared to pay a lesser amount than the statutory amount of gratuity based on any lower rate of premium, still the employer is liable to make good the loss.
From India, Salem
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