Does Employee Needs To Pay Gratuity From His Salary ?

Respected All,

I have received an offer letter from an organization wherein they have offered me a basic salary of 10,329, and they are deducting Rs. 497 from my monthly gross salary as a part of gratuity. Am I actually supposed to pay this from my salary? If yes, then on what basis has this amount been decided?

Hi,

Gratuity is paid by the employer to their employees when an employee has worked a minimum of 5 years with them as part of a retirement or resigning benefit as stated by the law or act. Deducting from an employee's gross salary is not fair. However, they can show it in CTC as part of the employer's contribution to an employee. So, do check with them. It's good if it is included as part of CTC, but if it is deducted from the gross salary, they cannot do so.

Gratuity is the reward in the form of money from an employer to his employee upon termination for their past services, given as a gesture of gratitude towards the services rendered. As Mr. Christopher has advised that it cannot be deducted from the Gross Salary but can be adjusted in CTC, I strongly state that it should not even be adjusted in CTC as a component. Logically, it should be given from the employer's pocket and not counted as a CTC component. However, nowadays, we HR personnel guide the employer to utilize this component as part of CTC.

In my view, this is not a fair practice by the employer. It is up to you whether you accept it or not.

Thank you, gentlemen, for your valuable inputs. With the help of the inputs provided by you, I have requested my HR to explain that to me before accepting the offer. I will keep you posted on it. Thanks :)

Few companies and HR professionals are very smartly using the term CTC and putting all their expenses towards an employee under their CTC, whether it is a matter of EPF, gratuity, or other benefits. When an employee asks about these expenses, they claim that the particular amount is being invested for the employee, which is why it is included in the CTC.

Ideally, a company should not add or deduct any amount from the salary for gratuity, and good companies are following this practice.

Hi,

CTC means Cost to the Company and not cost to the employee. It's always better to include all direct and indirect costs in the CTC for better understanding. Today, everybody is well aware of the salary breakup given by an employer. We can't just rate a company based on their CTC workings. The only concern here is if the HR person details the breakup before or after the offer, then there won't be any doubts or queries raised because of this. So, it's not harmful to include anything with a briefing to the employee.

Thank you.

Dear Saji,

The concept of CTC has been well explained by Mr. Christopher. The Gross salary is the salary payable to the employee on a monthly basis. Thereafter, LTA, Medical reimbursement, Bonus, etc., are payable to the employee as per the terms and conditions of employment and statutory provisions.

However, the employer, on his part, has to make provisions for his liability in respect of employees working in the organization. With this in view, components such as Gratuity, PF, Superannuation, Cost of Uniform, Canteen facility, Transport facility, Premium paid towards Mediclaim, Personal Accident Policy, etc., are added and shown as Cost To Company (CTC).

In other words, if the employee were to join some other organization which does not:

a) Offer PF coverage (by applying the wage ceiling available under the act),
b) have Superannuation benefits (Generally 15% of the employee's basic salary is invested in LIC's superannuation scheme, from which the employee gets benefits on his superannuation or separation from service after fulfilling conditions laid down under the scheme),
c) provide Uniform (If the company does not provide uniform, the employee needs to buy shirting & suiting for his daily wear to the organization),
d) have canteen facility (if there is no canteen, the employee has to make his food arrangements),
e) have Transport facility (if there is no transport facility, he has to commute to the place of work at his expense),
f) have a Mediclaim facility (either the employee & his family are not covered or the employee has to pay the premium from his pocket),
g) have a Personal Accident Policy (The employee may lose the weekly benefit available under the Policy and the compensation payable to his dependents in the event of an unfortunate death of the employee).

Either the employee has to spend additionally or does not get accrued benefits from the employer.

Weekly off, Holidays, etc., are offered by almost all companies, and hence comparison may not be relevant. For the employee to make an apple-to-apple comparison, CTC is shown by employers for him to draw his conclusion.

This is the reason why companies show this as part of CTC to indicate to the candidates the benefits in addition to the salary being paid. Some companies even show variable pay packages such as performance incentives as part of CTC. If the employee/ company performs, he gets the incentive to the extent of performance.

In this context, showing perquisites/benefits as part of CTC is not uncommon among employers.

Regards,

M.V. Kannan

Dear Mr. Kanan,

According to my view, facilities like Canteen/Uniforms/Medical, etc., cannot be counted in CTC, as Medical is a statutory requirement which the employer has to provide as per the relevant statutes. If an employee who is Jain/Swaminarayan would not prefer to take the food available in the canteen, he may bring tiffin. Would you force him to take the canteen facility? Uniform is provided to show uniformity among the employees. I have a lady candidate who belongs to the Muslim community and wears her burqa. She refused to wear the uniform which is against her religious ethics. Should we force her to wear the uniform or should we terminate her for just not wearing the uniform? These facilities provided by any company cannot be forced upon the employee and thus cannot be part of CTC.

Regarding Gratuity, it is given at the time of leaving the organization as a gesture, which we are not sure whether the employee will stay with the company for not less than 5 years.

Last but not least, it was not to hurt the sentiments of either Mr. Christopher or any HR fraternity but to have revealed my views, which are not necessarily to be accepted by anyone.

Dear Mr. Kamble,

Gratuity Calculation = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26. If I consider even your DA to be nil, then also at the end of 5 years, you are entitled to Rs. 29,795/- as gratuity. The organization is deducting Rs. 497 per month from your salary. So, if you calculate 497 x 12 x 5, it comes to Rs. 29,820!

For the first time in my life, am I hearing of such abuse of a good HR practice of rewarding an employee for his loyalty. Do consider a number of times before considering the offer - this may just be the tip of an iceberg of HR manipulation.

Regards,
Dr. Parveen Ahmed Alam