Hello,
My organization has been contributing Gratuity as part of CTC from the date of joining. The way of calculation of Gratuity has been Basic X 15/26. This was accepted by the employee at the time of joining. However, the employee has now expressed his displeasure for the same as he is losing an amount of Rs 5000 if the gratuity is calculated for the last drawn salary X 15/26. He also cites that since his joining, his Basic has gone up 37% in the last 6 years. I would like to know if we are wrong in computing gratuity from the date of joining.
Please advise.
From India, Mumbai
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16My organization has been contributing Gratuity as part of CTC from the date of joining. The way of calculation of Gratuity has been Basic X 15/26. This was accepted by the employee at the time of joining. However, the employee has now expressed his displeasure for the same as he is losing an amount of Rs 5000 if the gratuity is calculated for the last drawn salary X 15/26. He also cites that since his joining, his Basic has gone up 37% in the last 6 years. I would like to know if we are wrong in computing gratuity from the date of joining.
Please advise.
From India, Mumbai
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Dear Madam,
As per the Gratuity Act, the calculation is Basic + DA * 15 * Number of Services / 26. How did he lose Rs. 5000/-? Could you elaborate for my understanding? Gratuity must be calculated from the first day of joining.
Regards, Manjunath S B
From India, Chennai
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As per the Gratuity Act, the calculation is Basic + DA * 15 * Number of Services / 26. How did he lose Rs. 5000/-? Could you elaborate for my understanding? Gratuity must be calculated from the first day of joining.
Regards, Manjunath S B
From India, Chennai
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Dear Sir Please consider the following calculation as attached as an image Regards Anuradha
From India, Mumbai
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From India, Mumbai
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(Fact Check Failed/Partial)-The calculation provided in the image is incorrect. As per the Payment of Gratuity Act, gratuity should be calculated as Last Drawn Salary X 15/26. Please adjust the calculation accordingly.
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Gratuity figure while calculating CTC (No legal stand) is a notional figure, not the actual figure. When an employee becomes eligible for gratuity, it should be paid based on the last drawn Basic or Basic+DA. Therefore, the calculation shown is not correct. Monthly gratuity values are notional, not actual.
Please let me know if you need further assistance.
From India, New Delhi
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Please let me know if you need further assistance.
From India, New Delhi
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(Fact Check Failed/Partial)-The user reply is incorrect. According to the Payment of Gratuity Act, gratuity should be calculated based on 15 days of last drawn salary for each completed year of service. The calculation method mentioned in the original post is correct.
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Dear Bandyopadhyay Is this notional calculation of Gratuity prohibited as per the act if so is there any penalty for doing so. Please do let me know Reagrds Anuradha
From India, Mumbai
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From India, Mumbai
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(Fact Checked)-The notional calculation of gratuity is not prohibited by law. The Payment of Gratuity Act allows for different methods of calculation. No penalty applies for this practice. (1 Acknowledge point)
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I would like to know if you are from HR or from some other function?
I am not sure if you read the attachment properly or whether you wrote your query wrong.
The gratuity part on CTC comes to ₹ 89,000 while the actual gratuity that will be paid comes to ₹ 94,000. So how exactly does the employee lose? The company loses, not the employee. He or She is getting paid ₹ 5,000 more than what is computed as per her CTC.
From India, Mumbai
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I am not sure if you read the attachment properly or whether you wrote your query wrong.
The gratuity part on CTC comes to ₹ 89,000 while the actual gratuity that will be paid comes to ₹ 94,000. So how exactly does the employee lose? The company loses, not the employee. He or She is getting paid ₹ 5,000 more than what is computed as per her CTC.
From India, Mumbai
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(Fact Check Failed/Partial)-The user's reply is incorrect. The calculation of gratuity based on Basic X 15/26 is not aligned with the legal requirement of gratuity being calculated on the basis of the last drawn salary. The increase in Basic over the years should positively impact the gratuity amount. It's essential to ensure compliance with the Payment of Gratuity Act for accurate calculations.
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Dear Anuradha,
As per the Payment of Gratuity Act, gratuity has to be paid based on the last drawn salary, not on each year's gratuity, and then added on the basis of each year's different basic. Calculating gratuity on a yearly basis simply violates the guidance of the Payment of Gratuity Act.
Thank you.
From India, New Delhi
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As per the Payment of Gratuity Act, gratuity has to be paid based on the last drawn salary, not on each year's gratuity, and then added on the basis of each year's different basic. Calculating gratuity on a yearly basis simply violates the guidance of the Payment of Gratuity Act.
Thank you.
From India, New Delhi
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(Fact Check Failed/Partial)-The user reply is incorrect. As per the Payment of Gratuity Act, gratuity is calculated based on the formula: Last drawn salary X 15/26, not on each year's salary. This calculation method is in line with the Act's provisions.
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As rightly said by Nanu, gratuity has nothing to do with salary at the time of joining and subsequent increments given, but it is based on the salary of the employee at the time of exit. I also believe that gratuity should be calculated on the basis of total salary and not on basic salary alone. Allowances which do not form part of salary should only be excluded from it. Allowances which do not form part of salary means such allowances that will be paid irrespective of attendance or whether the employee is on leave or not, like house rent, which is paid to some employees who stay in rented houses for meeting the interests of the company, education allowance, which is paid to those who have children undergoing some studies, telephone allowance to some employees who use personal telephone for company business purposes, etc.
Here what is important is "some" employees. If you have an HRA or education allowance or telephone allowance as part of your salary structure and it is paid to all employees irrespective of whether they stay in their own houses or whether they are asked to stay near the company or not, or whether the children undergo any courses of study or use the telephone for official purposes, as the case may be, the same will be considered as part of the salary. Obviously, in case of leave without pay, you will make a proportionate deduction of HRA, education allowance, or telephone allowance while making salary payment.
From India, Kannur
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Here what is important is "some" employees. If you have an HRA or education allowance or telephone allowance as part of your salary structure and it is paid to all employees irrespective of whether they stay in their own houses or whether they are asked to stay near the company or not, or whether the children undergo any courses of study or use the telephone for official purposes, as the case may be, the same will be considered as part of the salary. Obviously, in case of leave without pay, you will make a proportionate deduction of HRA, education allowance, or telephone allowance while making salary payment.
From India, Kannur
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(Fact Check Failed/Partial)-The user reply contains inaccuracies. Gratuity is calculated based on the last drawn salary, not the salary at the time of joining. It should be based on total salary, excluding only certain allowances. Please refer to the Payment of Gratuity Act, 1972 for detailed provisions.
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Saswata,
Have you read my query and understood it, as you claim to be an Auditor?
How is the company losing and the employee gaining? Can you explain your stand with calculations to support your presumptions?
Anuradha
From India, Mumbai
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Have you read my query and understood it, as you claim to be an Auditor?
How is the company losing and the employee gaining? Can you explain your stand with calculations to support your presumptions?
Anuradha
From India, Mumbai
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(Fact Check Failed/Partial)-The employee is losing because the calculation method used is outdated. Gratuity should be based on the last drawn salary. Calculation: (Last drawn salary X 15/26). This aligns with the Payment of Gratuity Act, 1972.
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Dear Ms. Anuradha Grewal,
Statutory gratuity is a future payment based on the length of past service rendered in the establishment by the employee in the event of his exit, and the factor for calculation is the last drawn wages by the employee. Here, the last drawn wages are not only what is actually drawn in the last month but also the rate at which it is payable. Thus, it is clearly evident that gratuity under the Payment of Gratuity Act, 1972, is a one-time lump sum payment payable by the employer to the employee on the termination of his employment and as such it requires no contribution from the employee other than blemishless and continuous service under the same employer.
Of course, the Act encourages the employer to constitute a gratuity fund or compels them to take up an insurance policy towards this future liability under section 4-A of the Act. The calculation for this is normally on an actuarial basis at 4.81% of the wages. However, the amount to be realized under this arrangement shall not be less than the actual amount of gratuity payable at the end of service. So, you can add up a sum equivalent to 4.81% of the wages every year to the gratuity fund, which can be a part of the CTC in respect of the particular employee, and this cannot be deducted from his basic wages. In the given case, the employee is entitled to a sum of Rs. 1,134,630.00 on his exit after a service of 7 years in the establishment.
Therefore, your calculation is erroneous from the very beginning as you start from the sum of CTC, which is nothing but an accounting tool to assess the overall cost per employee per annum and is in violation of section 4(2) of the PGA, 1972. In case of a dispute by the aggrieved employee, you would be compelled to pay the difference with 10% simple interest with effect from the date it becomes payable.
Dear Mr. Madhu,
I am a bit confused by your post regarding the definition of the term 'wages' for the purpose of the calculation of gratuity under the PGA, 1972. Maybe your interpretation is based on "the doctrine of universality" applied by the Apex Court recently on the interpretation of wages under the EPF Act, 1952.
To me, the definition of wages under section 2(s) of the PGA, 1972, is clear, unambiguous, and not disturbed by any other subsequent provision of the Act leading to another possible interpretation, if any. The definition can be divided into three parts: one, the defining part; two, the inclusive part; and three, the exclusive part. Wages mean all earned emoluments while on duty or on leave. Wages include dearness allowance. Wages exclude bonus, commission, house rent allowance, overtime wages, and other allowances. Therefore, it is clear that for the purpose of gratuity calculation under the Act, only the sum of the last drawn basic wages and dearness allowance should be taken into account.
From India, Salem
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Statutory gratuity is a future payment based on the length of past service rendered in the establishment by the employee in the event of his exit, and the factor for calculation is the last drawn wages by the employee. Here, the last drawn wages are not only what is actually drawn in the last month but also the rate at which it is payable. Thus, it is clearly evident that gratuity under the Payment of Gratuity Act, 1972, is a one-time lump sum payment payable by the employer to the employee on the termination of his employment and as such it requires no contribution from the employee other than blemishless and continuous service under the same employer.
Of course, the Act encourages the employer to constitute a gratuity fund or compels them to take up an insurance policy towards this future liability under section 4-A of the Act. The calculation for this is normally on an actuarial basis at 4.81% of the wages. However, the amount to be realized under this arrangement shall not be less than the actual amount of gratuity payable at the end of service. So, you can add up a sum equivalent to 4.81% of the wages every year to the gratuity fund, which can be a part of the CTC in respect of the particular employee, and this cannot be deducted from his basic wages. In the given case, the employee is entitled to a sum of Rs. 1,134,630.00 on his exit after a service of 7 years in the establishment.
Therefore, your calculation is erroneous from the very beginning as you start from the sum of CTC, which is nothing but an accounting tool to assess the overall cost per employee per annum and is in violation of section 4(2) of the PGA, 1972. In case of a dispute by the aggrieved employee, you would be compelled to pay the difference with 10% simple interest with effect from the date it becomes payable.
Dear Mr. Madhu,
I am a bit confused by your post regarding the definition of the term 'wages' for the purpose of the calculation of gratuity under the PGA, 1972. Maybe your interpretation is based on "the doctrine of universality" applied by the Apex Court recently on the interpretation of wages under the EPF Act, 1952.
To me, the definition of wages under section 2(s) of the PGA, 1972, is clear, unambiguous, and not disturbed by any other subsequent provision of the Act leading to another possible interpretation, if any. The definition can be divided into three parts: one, the defining part; two, the inclusive part; and three, the exclusive part. Wages mean all earned emoluments while on duty or on leave. Wages include dearness allowance. Wages exclude bonus, commission, house rent allowance, overtime wages, and other allowances. Therefore, it is clear that for the purpose of gratuity calculation under the Act, only the sum of the last drawn basic wages and dearness allowance should be taken into account.
From India, Salem
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(Fact Check Failed/Partial)-[The user reply contains inaccuracies. The Payment of Gratuity Act, 1972 mandates that gratuity is calculated based on the last drawn salary, not the CTC. Also, the definition of wages under the Act includes basic salary and dearness allowance, but not other components like house rent allowance or overtime wages. The calculation method described in the reply is not in alignment with the legal requirements. Based on the latest laws and rules, the correct approach should be to calculate gratuity based on the last drawn salary, which includes basic salary and dearness allowance, and not deductions from CTC.]
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(Fact Check Failed/Partial)-The user reply is [B]incorrect[/B] based on the latest regulations. The correct formula for gratuity calculation is Basic + DA * 15/26. The calculation should be based on Basic and DA, not just Basic. It is essential to consider the entire formula for accurate computations.