Hi, What will be the gratuity calculation if the basic salary is 35% of to the in-hand salary for a hand salary of 1 lakh?
Other allowance contribute 65% of salary structure ( HRA 50% of basic and rest are allowance, special allowance, medical allowance, mobile allowance, travel allowance)
all components are paid same every month
is Wage Code 2022-2023 is applicable
is the wages calculation is different according to below section
Section 2(s) - Definition of Wages
This section defines "wages" as all emoluments earned by an employee according to the terms of employment, payable in cash, including dearness allowance but excluding bonuses, commissions, and other similar allowances.
From India, New Delhi
Other allowance contribute 65% of salary structure ( HRA 50% of basic and rest are allowance, special allowance, medical allowance, mobile allowance, travel allowance)
all components are paid same every month
is Wage Code 2022-2023 is applicable
is the wages calculation is different according to below section
Section 2(s) - Definition of Wages
This section defines "wages" as all emoluments earned by an employee according to the terms of employment, payable in cash, including dearness allowance but excluding bonuses, commissions, and other similar allowances.
From India, New Delhi
Your total salary, ie, Rs 1 lakh, will qualify for gratuity. the definition of wages as per Payment of Gratuity Act excludes only allowances similar to overtime allowance, bonus, commission and HRA. The HRA as part of salary is not an allowance to be excluded because if it is paid along with salary and paid to all employees without considering whether the employee resides in leased accommodation or not or whether the spouse of the employee is in receipt of HRA or not cannot be considered as compensatory allowance. Moreover, in the Act no where it is said that gratuity should be calculated only on basic salary. Please read further.....
http://madhu-t-k.blogspot.com/2024/04/gratuity-qualifying-salary-some.html
The above article examines the scope of wages to qualify for gratuity.
From India, Kannur
4293http://madhu-t-k.blogspot.com/2024/04/gratuity-qualifying-salary-some.html
The above article examines the scope of wages to qualify for gratuity.
From India, Kannur
Yes, the Wage Code 2022-2023 (under the Code on Wages, 2019) changes the definition of "wages" for various purposes, including gratuity. This new definition can have a significant impact on gratuity calculations, as it standardizes how wages are calculated across different employment laws.
Key Change in the Definition of "Wages":
Under the Wage Code, "wages" are defined as:
Inclusions:
Basic Salary.
Dearness Allowance (DA).
Retaining Allowance (if applicable).
Exclusions:
House Rent Allowance (HRA).
Overtime Allowance.
Bonus or commission.
Conveyance allowance.
Special allowances.
Employer contributions to provident fund (EPF).
Gratuity.
Retrenchment compensation or any other form of ex-gratia.
Important Rule for Allowances:
If the excluded components (e.g., HRA, conveyance, etc.) exceed 50% of the total remuneration, the amount exceeding 50% will be added back to wages for the purpose of gratuity calculation.
This ensures that Basic Salary + DA (wages) must constitute at least 50% of the total remuneration.
How This Impacts Gratuity Calculation:
Basic Salary Adjustments:
If allowances (e.g., HRA, special allowance) are high (more than 50% of total remuneration), a portion of those allowances will now be considered as part of "wages" for gratuity calculations.
Under this rule, employees with lower "Basic + DA" and higher allowances may see an increase in their gratuity amount due to this adjustment.
Gratuity Formula Remains the Same: The formula for gratuity calculation remains:
Gratuity=(Wages×15×Years of Service)/26
However, the "Wages" definition may now include a portion of the excluded components if allowances exceed 50% of total remuneration.
Example:
Total In-Hand Salary: ₹1,00,000.
Basic Salary: ₹35,000 (35% of salary).
Allowances: ₹65,000 (65% of salary).
Under the Wage Code:
Since allowances (₹65,000) exceed 50% of the total salary, the amount exceeding 50% (₹15,000) will be added back to "wages."
Wages for Gratuity=₹35,000(Basic)+₹15,000=₹50,000
Gratuity will now be calculated on ₹50,000 instead of ₹35,000.
Impact:
Gratuity amounts may increase for employees with a low Basic Salary component and high allowances.
Employers may need to restructure salary components to maintain compliance with the new definition.
The Wage Code 2022-2023 ensures fairness by mandating that "wages" (Basic + DA) constitute at least 50% of total remuneration. Employers must consider this when calculating gratuity. If your organization adopts the Wage Code, the gratuity calculation will change as explained above.
From India, Pune
Key Change in the Definition of "Wages":
Under the Wage Code, "wages" are defined as:
Inclusions:
Basic Salary.
Dearness Allowance (DA).
Retaining Allowance (if applicable).
Exclusions:
House Rent Allowance (HRA).
Overtime Allowance.
Bonus or commission.
Conveyance allowance.
Special allowances.
Employer contributions to provident fund (EPF).
Gratuity.
Retrenchment compensation or any other form of ex-gratia.
Important Rule for Allowances:
If the excluded components (e.g., HRA, conveyance, etc.) exceed 50% of the total remuneration, the amount exceeding 50% will be added back to wages for the purpose of gratuity calculation.
This ensures that Basic Salary + DA (wages) must constitute at least 50% of the total remuneration.
How This Impacts Gratuity Calculation:
Basic Salary Adjustments:
If allowances (e.g., HRA, special allowance) are high (more than 50% of total remuneration), a portion of those allowances will now be considered as part of "wages" for gratuity calculations.
Under this rule, employees with lower "Basic + DA" and higher allowances may see an increase in their gratuity amount due to this adjustment.
Gratuity Formula Remains the Same: The formula for gratuity calculation remains:
Gratuity=(Wages×15×Years of Service)/26
However, the "Wages" definition may now include a portion of the excluded components if allowances exceed 50% of total remuneration.
Example:
Total In-Hand Salary: ₹1,00,000.
Basic Salary: ₹35,000 (35% of salary).
Allowances: ₹65,000 (65% of salary).
Under the Wage Code:
Since allowances (₹65,000) exceed 50% of the total salary, the amount exceeding 50% (₹15,000) will be added back to "wages."
Wages for Gratuity=₹35,000(Basic)+₹15,000=₹50,000
Gratuity will now be calculated on ₹50,000 instead of ₹35,000.
Impact:
Gratuity amounts may increase for employees with a low Basic Salary component and high allowances.
Employers may need to restructure salary components to maintain compliance with the new definition.
The Wage Code 2022-2023 ensures fairness by mandating that "wages" (Basic + DA) constitute at least 50% of total remuneration. Employers must consider this when calculating gratuity. If your organization adopts the Wage Code, the gratuity calculation will change as explained above.
From India, Pune
in my opinion the wages under the new codes are stupid. Currently all emoluments as per contract of employment are part of wages. But when the Codes are enforced, it will depend upon certain other allowances. Interestingly, an employee getting overtime wages in the last month will get more gratuity because overtime is also one of the allowances the 50% of which will also be added to the basic wages. Similarly, in the case of an establishment which does not restrict the contribution towards EPF at the threshold limit (of Rs 15000) will have to consider that also as part of wages for all contributions including gratuity and also PF (!!)
It is surprising that after putting a lot of investments in Codes the result is an empty bottle!! Even the sensitive issues like gratuity eligibility for an employee who has put in 4 years and 240/190 days has not been addressed in the SS Code. The code is just a copy and paste of what are there in the separate legislations as it is available currently. Yes, the Wage Code covers all employees irrespective of salary ceiling of Rs 24000. Similarly, 300 persons are required to make the employer liable to have Standing Orders. This is 50 in many states and 100 as per the principal Act. Chapter VB of the ID Act which mandates approval from the government to close down a unit employing 100 workers have been made applicable to establishments employing only 300 workers. Actually, these could have been achieved by means of an amendment also!!
From India, Kannur
It is surprising that after putting a lot of investments in Codes the result is an empty bottle!! Even the sensitive issues like gratuity eligibility for an employee who has put in 4 years and 240/190 days has not been addressed in the SS Code. The code is just a copy and paste of what are there in the separate legislations as it is available currently. Yes, the Wage Code covers all employees irrespective of salary ceiling of Rs 24000. Similarly, 300 persons are required to make the employer liable to have Standing Orders. This is 50 in many states and 100 as per the principal Act. Chapter VB of the ID Act which mandates approval from the government to close down a unit employing 100 workers have been made applicable to establishments employing only 300 workers. Actually, these could have been achieved by means of an amendment also!!
From India, Kannur
Hi
As per Sec.2 (s) of the Payment of Gratuity Act, 1972, the term "wages" is defined as all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
So, if we look at the definition, it is clearly mentioned that the term wages does not include HRA or any other allowances payable to an employee. Hence, it can be construed that only Basic and Dearness Allowance will form wages as per the Act and gratuity to be calculated only on that. This is what is being followed in all the companies to my knowledge goes.
However, the term wages is defined under the Labor Codes totally different manner which shall be invoked as and when the codes are implemented by the respective states.
Regards,
From India, Chennai
As per Sec.2 (s) of the Payment of Gratuity Act, 1972, the term "wages" is defined as all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
So, if we look at the definition, it is clearly mentioned that the term wages does not include HRA or any other allowances payable to an employee. Hence, it can be construed that only Basic and Dearness Allowance will form wages as per the Act and gratuity to be calculated only on that. This is what is being followed in all the companies to my knowledge goes.
However, the term wages is defined under the Labor Codes totally different manner which shall be invoked as and when the codes are implemented by the respective states.
Regards,
From India, Chennai
I differ from the interpretation of Mr Ranghanatha on one point. The definition of wages excludes 'other allowance'. But what is other allowance? There are allowances like education allowance, overtime allowance, house rent allowance, shift allowance, meals allowance, travel allowance etc. But there is no allowance called "other" allowance. The exclusion part of the definition of wages contains overtime, house rent, commission, bonus and other allowance. That does not mean that you can have a component called. "other allowance". What is intended is to exclude all allowances similar to commission, overtime, bonus and house rent. The principle of ejusdem generis can be applied here also. The allowances to be excluded should be similar to those excluded in the definition. There is a common characteristics for these allowances, and that is, these are allowances payable depending on some condition, ie, commission is based on some results, overtime is based on overstaying work, bonus is based on profits, or HRA is based on certain factors like the employee is staying in leased accommodation and his spouse is not getting HRA. Out of these allowances the HRA is generally paid to all workers in a private company. Obviously, proportionate deduction is made from HRA if the employee remains absent for a day. Moreover, the HRA will be paid to all employees whether thy reside in own house or not. That establish that HRA is not a compensatory allowance which could be excluded from the scope of wages. If you have education allowance as fixed component of salary and is paid to all employees irrespective of whether any child is getting education or not is not actually an allowance but is part of wages which should also qualify for gratuity. This is my observation.
From India, Kannur
From India, Kannur
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