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Is gratuity a part of CTC
06-Jul-2023 (In Labour & Service Law)
Gratuity is a amount paid to employee by an employer when he exit after min service of 5 + years kindly advice:- Is that Gratuity is a CTC component because lot of companies are making it part of CTC. Till level i understand if it's a part of CTC it should be paid back to employee along with FNF while exiting even before completion of 5 years. than why most of companies stick to gratuity act that 5 years service is required to become eligible.
Gratuity is a statutory right of employee whoever completes 5 years in the same organization, and is a terminal benefit.
The cost is to be born by employer and not employee.
Gratuity can not be a part of CTC. If company is making it part of CTC you can agitate before the controlling authority. Or even legal notice from one ( common ) lawyer of all employees to company might be sufficient to drill sense into it and to get the entire payment released.
It may be treated as minor fraud. However you shall be eligible to get the amount even if you have not completed 5 years.
The amount paid by company to Group Gratuity Insurance Scheme is accumulated and LIC pays interest on it. This fund is created so as to meet the payment of gratuity to employees in case of death, disability. If this fund is not created company has to bear the cost from its own resources. Moreover in case of termination/resignation of eligible employee the payment is made from the fund and rest is carried forward and keeps on earning interest. Moreover after 5 years company shall make a payment as per formulae of the gratuity, while if you consider the monthly contributions (shown as part of CTC or collected from employee) the amount shall be more than amount calculated by gratuity formulae.
The companies which make gratuity as part of CTC pay the amount as Tax rebated/Ex. Gracia in FNF settlement even if employee leaves before 5 years ( or 4Y8M/ 6M as the case may be).
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Adv. Siddhant Sharma
Delhi | 200+ Answers
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