IS YOUR CTC STRUCTURE GRATUITY LAW COMPLIANT?

The Problem

Of late, I have noticed many employers making this silly little mistake in their CTC structures where they are showing Gratuity as a part of Annual CTC, without qualifying/clarifying that the such Gratuity will be payable as per the provisions of the Payment of Gratuity Act 1972.  

However innocuous or obvious this sounds, some employees are taking employers to labour court/authorities complaining that that such a structure, in fact, implies that they were enrolled in a more lucrative/beneficial gratuity scheme by the employer which pays for each completed year or even month and show their CTC documents as proof. Interestingly, the authorities are finding this as a valid argument. In case your CTC structure also shows Gratuity an annual or monthly component without any conditions mentioned therein, It is time to take a small corrective step.

Solution

I would strongly recommend to all the employers/ payroll managers/ C & B experts to ensure that there is footnote in your CTC structure mentioning clearly that the “Gratuity in the CTC structure is payable as per the payment of gratuity act and rules thereunder”. 

This shall ensure that there is absolute clarity that the employer, while rightfully showing Gratuity as a part of CTC, is not in any manner implying any separate more beneficial gratuity scheme wherein the employee may be paid gratuity even without working in the company for the statutory period as laid out under the act.

For those who may be interested in knowing more on this topic may refer to the recent judgment of the Hon’ble supreme court in BCH Electric Limited vs Pradeep Mishra MANU/SC/0425/2020.

“A stick in time saves nine”