I have query here. When gratuity is part of CTC but not a part of Gross Salary. Why should we pay back. Within CTC we shall tell its employer benefit subject to statutory rules
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Thank you all for the clarifications. After going through all the responses, I understand Gratuity need to be paid only to eligible employees (those who complete 4 years and 240 days of continuous service) at the time of exit (resignation/retirement/transfer to other Geo) and not on a monthly basis.
As fellow members rightly pointed, CTC is the total cost incurred by the company against each employee. I have noticed few employers show annual employer PF component as part of CTC (just to give higher pay feel to employees) which doesn’t mean employer will have to pay the projected annual PF to an employee when they quit in the middle of the year.
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CTCeans it will bear by employees
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Dear Jaishree,
Just want to be clarified, on your second paragraph whereby employers add the PF component as part of CTC - should this not be the proper way? As clearly PF employer contribution is a cost to company?
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Yes, you are right. In my statement I meant to say likewise gratuity is also a cost to company.
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Hello,
I went through the post. Many valuable insights.
I have couple of questions:
- Is it legal to include Grauity in CTC?
- If we decide to include in CTC, what is the formula for that?
- Do our company have to be registered anywhere for Gratuity? or after completion of 4yrs 240 days, at the time of F&F , we just pay the gratutiy?
- Any other points to be considered?
Thanks,
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What is Gratuity act. Do we need to create any separate account or file some return annually
Pl guide
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Hi,
Any establishment employing more 10 employees are bound to give gratuity. Also, the employee must complete 4.6yrs of employment in the that company. If the employee completes 6 months in a year, he/she is eligible. IN the contrary, if he/she has not completed 6 months, that year will not be counted… Ex. If an employee has worked for 10 and 7 months, the completed years of service will be 11 years. On the other hand, if he/she has worked for 10 years and 3 months, the completed years of service will be 10 years only.
I hope it is clear now…
Thanks & Regards
Anand Christopher
Chief Mentor
8089946456
Stay Safe … Stay Compliant …
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Gratuity can not be included in the CTC and should not be. First of all understand how to calculate Gratuity then you will come to know that it is not a part of CTC:-
The Gratuity calculation formula is:
Gratuity = (15 × last drawn salary × working tenure)/30.
For instance, if you have worked for a company for seven years and your basic salary was Rs. 35,000.
Gratuity Amount = (15 × 35,000 × 7) / 30 = 1,22,500.
Now you can see how you can calculate the last drawn salary of the employee?
Gratuity is a retirement benefit and given after retirement or separation from the company after the fixed tenure as per prevailing law. It is 5 years at present. The upper cap for gratuity is Rs.10 Lakhs for Non-government employees and 20 Lakhs for Government Employees.
Gratuity is to be paid even in case of bankruptcy of the employer.
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There are two distinct aspects; one is calculation of gratuity and the second one is whether it is right to show Gratuity as part of CTC.
First one is is clear to all and is backed by statutory regulation.
The second aspect - showing Gratuity as part of CTC. It is a practice in India and in my limited understanding, there is no rule that restrict such a practice. It is up to the employer to project all sort of cost/investments to hire and employ an employee in the organization.
Note: Social Security/Labour Departments do not consider CTC for any of their rulings, explanations, reports, returns etc. It is used for the employment terms/ understanding and agreement between employer and employee.
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I hope Last drwansalary 15/26 No of years service correct me if I am wrong…
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This formula is for the employers who are not covered under the Gratuity Act.
The Gratuity calculation formula is:
Gratuity = (15 × last drawn salary × working tenure)/30.
For instance, if you have worked for a company for seven years and your basic salary was Rs. 35,000.
Gratuity Amount = (15 × 35,000 × 7) / 30 = 1,22,500.
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For Employers who are covered Under The Gratuity Act ,The Gratuity calculation formula is:
Gratuity = nb15 / 26
Where n = Tenure of service completed in the company
b = Last drawn basic salary + dearness allowance
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Please explain how you will show Gratuity in CTC? Is there any bond that employees will work for 5 years?
If it is included in the CTC then it should be given in each year. Otherwise simply employer can write the Gratuity will be given as a part of Retirement Benefits.
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we can calculate this way also
Gratuity=Basic/2615Service year
For example- Basic-20,000 & Service year -6 years
=20,000/26156
=69230.7692307692
=69231
26-denotes total working days in a month -excluded four Sundays
15-half month
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Pls let me know is it “basic” salary or “gross” salary?
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Basic Salary including DA if there is in the CTC. Not Gross Salary.
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Also, kindly let me know the Gratuity Act. What should be the calculation of ours.
Employer- “Subhasree Projects Pvt Ltd” Employee strength-80.
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Hi,
It is Basic+DA (Dearness allowance)
As pvt company do not have DA so consider Basic…hope it is clear Mashulika
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Hi HRReliable Group,
Can you please explain this further - what are companies under the gratuity act and why is the computation different for those not covered under the Gratuity Act.
Is there a registration needed to be under the gratuity act?
Thank you
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