Gratuity Eligibility

You may try to decipher what is CTC; the answer is obvious.

Greetings,

Firstly we need to understand the meaning of Gratuity and CTC. An employee who completes 4 years and 240 days of continuous service becomes eligible for Gratuity. The CTC is known as Cost to Company, which has all the details that the company will have to consider to determine the employment of an employee.

You can also have a look at these links to an earlier forum:- 
https://www.lawyersclubindia.com/forum/gratuity-is-a-part-of-the-ctc--55344.asp

https://www.lawyersclubindia.com/forum/Gratuity-is-deducted-as-part-of-annual-component-ctc-89335.asp

https://www.lawyersclubindia.com/forum/gratuity-if-not-part-of-ctc-149259.asp
 

The following is the query:

Is he not eligible to claim the Gratuity amount as the company has made that a part of his CTC? If it an expense for the company towards his employee than it is also a loss of an employee if he won't get his full CTC amount for which the company and employee has agreed to at the time of interview.

Reply:  As the meaning of "Gratuity" itself suggests to take care of the employe's future needs.  The Act stipulates some conditions that employee should be loyal to his employer at least for 5 years, as a certain amount of training, recruitment costs are involved.  The service conditions are subject to stipulated conditions in Act without exception.

It is just a fund created in a balance sheet showing it as a liability and the amount remains in the fund continuously.  If the employee wants to have gratuity, it is simple that he should work for the minimum time stipulated in the Act..  When the employee goes out, generally he goes out for better prospects, and the employer should hunt for a substitute to an employee who was recruited after incurring some costs and was trained in the organisation, and the new employee has to be recruited and trained...the cycle goes on.,

Fact of the matter is that CTC is sham term devised to bloat the pay packet vis-a-vis actual pay paid to the emplyee; CTC has no legal standing as regard to the provisions of Payment of Gratuity Act or any law relating to labour and emplyment.

True.  In certain private banks, the CEOs get crores of monthly salary, and the SBI Chairman draws a fraction of the salary of CEOs in private banks.  The term the private sector banks use for giving such huge pay packets is CTC- Contrary to Industry-wise pay structure through settlements.

Payment of Gratuity act, 1972 provides 5 years service to become eligible for gratuity.However, on completion of 4 years 240 days of service the case is also considered. Gratuity is a component for calculating cost of an employee to the company. 

I agree with expert Mr. Rohan Gupta

Formula for calculation is provided in the act itself.

As per the Payment of Gratuity Act, one is entitled to gratuity if he has served for 5 years or more and moreover CTC does not hold any position under the Act. Hence, in my opinion, gratuity is payable only after completition of 5 years or more irrespective of what is written in CTC. 

Yes, CTC factor is not material. An employee is entitled for gratuity on completion of 5 years of service. Some High Courts  (Kerala and Madras) have held that  completion of 240 days of service in the 5th year makes the employee eligible for gratuity. However, most of the employers have adopted the stand that application of the decision is restricted those states.

policy of any company cannot overrule the statute.

Gratuity means providing for the employee's future needs, as implied by the word itself.  According to the Act, an employee must be loyal to his employer for at least five years because a certain amount of training and recruitment costs is involved.  There are no exceptions to the service conditions stipulated in the Act. The fund is simply shown as a liability on the balance sheet and the amount remains in the fund indefinitely.  To receive gratuity, the employee must work for the minimum amount of time stipulated in the Act.  It is common for an employee to move on for better prospects when he leaves, and the employer must find a replacement for an employee who has been recruited after incurring costs and has been trained in the company, and the new employee has to be hired and trained.

Hi, 

As per my research, there is no such document legally stating that gratuity is a part of CTC. And an employee can only claim the gratuity amount after he has completed continuous 5 years of service. Though arguments were raised in the Madras court case, the law was not passed and is still in the appeal process.

Thank you.