Clarification Required on Gratuity Eligibility vs CTC Structure (Payment of Gratuity Act)

General Discussions
1

Dear greytHR Support Team,

I hope you are doing well.

I am seeking your guidance and clarification regarding gratuity eligibility under the Payment of Gratuity Act, 1972, in relation to CTC structure.

Background:

I recently completed my exit formalities from my organization and initiated a request to HR to process my gratuity. My employment details are as follows:

  • Employee Name: Lakshminarayanan S

  • Date of Joining: 25 June 2020

  • Last Working Day: 3 December 2025

  • Total Continuous Service: More than 5 years

My Request to HR:

I requested HR to initiate my gratuity process as I have completed more than 5 years of continuous service.

HR’s Response:

HR replied stating that the company’s CTC structure does not include a separate gratuity component, and advised me to refer to my payslip breakup for understanding.

Clarification Required:

I would like your expert guidance on the following points:

  1. As per the Payment of Gratuity Act, 1972, is gratuity eligibility dependent on whether it is shown as a component in the CTC or payslip?

  2. Can an employer deny gratuity to an employee who has completed 5+ years of continuous service solely on the basis that gratuity was not included in the CTC structure?

  3. From a statutory compliance perspective, what is the correct approach an employer should follow in such a scenario?

I am seeking this clarification purely to understand the correct legal and payroll compliance position and to proceed appropriately.

Thank you for your time and support. I look forward to your guidance.

Warm regards,
Lakshminarayanan S

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2

Any updates on this? Can any one please clarify my doubts?

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4

Any one can please answer this question?

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5

Hi Lakshmi Narayanan,

1. Is gratuity eligibility dependent on whether it is shown as a component in CTC or payslip?

No. Absolutely not.

Under the Payment of Gratuity Act, 1972, gratuity is a statutory terminal benefit, not a contractual allowance.

Key legal position:

  • Gratuity does not need to be shown as a component of:

    • CTC

    • Salary structure

    • Payslip

  • Eligibility arises by operation of law, not by inclusion in compensation documents.

Statutory basis
Section 4(1) of the Act states that gratuity shall be payable to an employee on termination of employment after continuous service of not less than five years, due to:

  • superannuation

  • resignation

  • retirement

  • death or disablement

The Act does not link gratuity to:

  • CTC design

  • employer disclosure practices

  • payslip break-ups

Even if gratuity is not mentioned anywhere in the employment documents, the statutory obligation still applies.

2. Can an employer deny gratuity solely because it was not included in the CTC structure?

No. Such a denial is legally untenable.

An employer cannot deny gratuity on the grounds that:

  • gratuity was not a CTC component, or

  • gratuity was not costed or accrued internally, or

  • gratuity was not reflected in payslips.

Why this argument fails legally:

  • Gratuity is a statutory right of the employee

  • Failure to account for it in CTC is an internal employer issue, not an employee disqualification

  • Courts have consistently held that statutory benefits cannot be waived, excluded, or contracted out

Relevant principle
Section 14 of the Act gives it overriding effect over any contract, policy, or agreement.

Any internal CTC structure or HR policy that attempts to bypass gratuity liability is void to that extent.

3. Has the employee completed “5 years of continuous service”?

Based on the details shared:

  • Date of Joining: 25 June 2020

  • Last Working Day: 3 December 2025

This constitutes more than 5 years of continuous service.

Additionally, judicial precedents has clarified that:

  • 4 years + 240 days in the 5th year qualifies as “5 years”

  • Your tenure exceeds even this liberal threshold

Hence, eligibility is clearly established.

4. What is the correct statutory and payroll compliance approach for the employer?

From a compliance perspective, the employer must:

a. Determine gratuity eligibility

Confirm completion of 5 years of continuous service (which is met in your case).

b. Compute gratuity as per statute

Gratuity is calculated as:

Gratuity = (Last drawn Basic + DA) Ă— 15/26 Ă— Number of completed years of service

  • Capped at the statutory ceiling (currently â‚ą20 lakhs)

  • CTC inclusion is irrelevant for this computation

c. Initiate payment timelines

  • Employer must determine and pay gratuity within 30 days of it becoming payable

  • Delay attracts simple interest under Section 7(3A)

d. Maintain statutory records

  • Form F (nomination)

  • Form L/M (registers)

  • Form I/J/K (application, notice, payment)

Failure to comply can attract:

  • Interest liability

  • Penalties under Section 9

  • Direction from the Controlling Authority under the Act

You may consider responding to HR by:

  • Citing Section 4 and Section 14 of the Payment of Gratuity Act

  • Clarifying that gratuity is a statutory post-employment benefit, independent of CTC

  • Requesting initiation of gratuity determination under Section 7

If required, escalation can be made to the Controlling Authority (Assistant Labour Commissioner) having jurisdiction but often, a legally-clear written clarification resolves the matter.

Hope this helps.

Regards,

Bhuvana Anand, LL.B., CIPP/E, CIPM, FIP, C.DPO.DA, DCPLA

Founder & Principal Consultant

Verisync Advisory

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6

If you could share your CTC breakdown and recent salary slip, it would provide us with the clarity needed to better understand your compensation.

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7

Thanks

I have attached my payslip for your reference. Could you please calculate and let me know the gratuity amount applicable in my case?

Screenshot_2025-12-19-18-33-56-82_4a24d271e133915ae237d4bec6ffe368
Screenshot_2025-12-19-18-33-56-82_4a24d271e133915ae237d4bec6ffe3681080Ă—846 79.5 KB

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@Verisync_Advisory Thanks much for your time.

I was relieved on December 3 and received salary only for 3 days in December. For gratuity calculation, will the company consider my last full month salary (November) or the 3 days’ salary paid in December?

9

Hi,

The gratuity formula works as below :

Gratuity = (Last Drawn Basic Ă— 15/26) Ă— Number of Completed Years of Service.

However, you have not mentioned your DOJ & DOL to calculate the Correct gratuity.

With regards,
Mohan kumar G
9482838223

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10

Hi

Thanks for your time.

Date of Joining: 25 June 2020

Last Working Day: 3 December 2025

11

Hi,

As per your below, the employee completed the 5 Years & eligible to avail his gratutiy amount.

However, I Had already shared the gratuity formula. Hence, you can calculate & pay the same to employee.

With regards,
Mohan kumar G
9482838223

1 Like