Hi Friends,
In our company, we are considering gratuity deduction of 2.5% from the Basic Salary. Some companies deduct 4.8%. Which percentage is correct?
Seeking your guidance.
Regards,
Balaji
From India, Coimbatore
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1In our company, we are considering gratuity deduction of 2.5% from the Basic Salary. Some companies deduct 4.8%. Which percentage is correct?
Seeking your guidance.
Regards,
Balaji
From India, Coimbatore
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Dear Balaji,
There is no concept of deduction of gratuity from the employee, it is basically a provision which would be consider as the cost to the company. It also depends upon the companies to make their own provision in terms of maintaining accounts.
But as per Gratuity Act 4.81% should be considered as a provision and accordingly calculated and paid to the employee.
Under section 4 (C) 2 of The Payment of Gratuity Act, 1972 for every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages (Basic + Dearness Allowance) based on the rate of wages last drawn by the employee concerned:
Gratuity payable = [15 / 26] * [Last monthly salary drawn] * [Years of service].
Gratuity Calculation for monthly basis on its basic wages which is = (15/26) / 12 months =0.577 /12 = 4.81%
Regards,
Janardan
From India, Mumbai
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There is no concept of deduction of gratuity from the employee, it is basically a provision which would be consider as the cost to the company. It also depends upon the companies to make their own provision in terms of maintaining accounts.
But as per Gratuity Act 4.81% should be considered as a provision and accordingly calculated and paid to the employee.
Under section 4 (C) 2 of The Payment of Gratuity Act, 1972 for every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages (Basic + Dearness Allowance) based on the rate of wages last drawn by the employee concerned:
Gratuity payable = [15 / 26] * [Last monthly salary drawn] * [Years of service].
Gratuity Calculation for monthly basis on its basic wages which is = (15/26) / 12 months =0.577 /12 = 4.81%
Regards,
Janardan
From India, Mumbai
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Dear Mr. Janardan
Thanks for your valuable reply. My question was wrong. I totally agree with your reply. But in our company we are considering Gratuity @ 2.5% in part of CTC. Whether this percentage can be considered or not?
Regards
Balaji.N.K
From India, Coimbatore
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Thanks for your valuable reply. My question was wrong. I totally agree with your reply. But in our company we are considering Gratuity @ 2.5% in part of CTC. Whether this percentage can be considered or not?
Regards
Balaji.N.K
From India, Coimbatore
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Dear Janardan, Gratuity calculationS explained by Mr. Balaji is statutorily correct, there is no other rate of Gratuity other than 4.81% on Basic and DA.
From India, New Delhi
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From India, New Delhi
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Hi.. I could not understand the above topic kindly explain with example. With regards, mrityunjay
From India, New+Delhi
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From India, New+Delhi
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Dear Balaji,
I just posed a counter question only to make you understand that gratuity is a statutorily payable terminal benefit by the employer and no contribution from the employee other than blemishless service. Janardhan has very well explained about the percentage of the annual contribution to be apportioned by the employer to the overall C.T.C.
For Mrityunjay's clarification: Whatever expenses including the proportionate cost of the terminal benefit of gratuity and other social security and welfare measures incurred annually by the employer to keep the employee under his services would be the Cost to the Company per employee. As per the Payment of Gratuity Act, 1972, gratuity payable on termination of employment is to be calculated at 15 days last-drawn wages for every year of completed service, subject to a maximum amount of Rs. 10 lakh. So, the notional provision to be made annually in this regard comes to 4.81% of the wages per annum of every employee.
From India, Salem
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I just posed a counter question only to make you understand that gratuity is a statutorily payable terminal benefit by the employer and no contribution from the employee other than blemishless service. Janardhan has very well explained about the percentage of the annual contribution to be apportioned by the employer to the overall C.T.C.
For Mrityunjay's clarification: Whatever expenses including the proportionate cost of the terminal benefit of gratuity and other social security and welfare measures incurred annually by the employer to keep the employee under his services would be the Cost to the Company per employee. As per the Payment of Gratuity Act, 1972, gratuity payable on termination of employment is to be calculated at 15 days last-drawn wages for every year of completed service, subject to a maximum amount of Rs. 10 lakh. So, the notional provision to be made annually in this regard comes to 4.81% of the wages per annum of every employee.
From India, Salem
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Gratuity amount is calculated on actuarial basis, so to give an appropriate view on the calculation of Gratuity as a component of CTC, the forum should know all the components of the CTC with %.
From India, Ahmadabad
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From India, Ahmadabad
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I am responsible for recruitment. During interviews, when I verify their CTC breakup, I notice variations in percentages for gratuity, such as 4.1%, 4%, and 2.5%. Are these percentages significant in the CTC breakup?
From India, Coimbatore
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From India, Coimbatore
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As mentioned by seniors, the gratuity should be 4.81% of the Basic+ DA.
From India, Ahmadabad
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From India, Ahmadabad
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