Tag Archives: Gratuity

Understanding CTC and your Actual Salary

14 Dec

15fin3Whether you are joining your first job or changing jobs, it is important to understand the difference between cost to company (CTC) and take home salary. It will help you in negotiate better with the HR and in structuring your salary.

One of the most commonly used terms by companies, yet least understood by its employees is ‘cost to company’ or CTC. The CTC, as quoted by employers and the take home pay are two different amounts.

Also salary hikes in the form of an increased CTC does not necessarily increase the monthly salary. So what exactly is CTC and as an employee what all are you entitled for?

This article aims to clarify the confusion that often arise in employees’ minds when it comes to salary structures.

 

Lets Understand about the CTC (Cost To Company)

Demystifying cost to company

Ravi Bhushan, a fresh software graduate, joined a top notch IT company. For his first job, he was extremely happy with the total CTC of Rs 6,00,000.

On the basis of this CTC, Ravi made lavish plans to spend his first month’s salary. Expensive gifts for family, a swanky new bike and the latest mobile phone. But when he got his first salary, he realised some of his plans had to wait.

His take home salary was nowhere close to his estimation. He approached his HR, who then explained the breakup of his CTC, which he had just glanced over at the time of joining.

Here’s what his HR manager explained to him:

The cost to company refers to the total expenditure a company would have to incur to employ you.

It includes monetary and non-monetary benefits, such as monthly pay, training costs, accommodation, telephone, medical reimbursements or other expenses, borne by the company to keep you employed. The total CTC need not be the actual salary in hand at the end of the month.

It is simply a sum of various components put together.

Components of CTC

Companies offer various attractive components in the CTC to retain and boost the morale of the employees. Whereas some salary components are fully taxable some are fully tax-exempt. The composition of your CTC and a few of its components could be grouped as below.

1. Fixed salary

This is the major part of your CTC and forms part of your monthly take home. It commonly consists of the following:

Basic salary: The actual pay you receive for rendering your services to the company. This is a taxable amount.

Dearness allowance: A taxable amount, this is paid to compensate for the rising cost of living.

House rent allowance (or HRA): Paid to meet expenses of renting a house. The least of the following is exempt from tax.

Actual HRA received:

  • 50 per cent of salary (basic + DA) if residing in a metropolitan city, or else 40 per cent
  • The amount by which rent exceeds 1/10th of salary (basic + DA)

Conveyance allowance: Paid for daily commute expenses. Up to an amount of Rs 800 per month is exempt from tax.

2. Reimbursements

This is the part of your CTC, paid as reimbursements through billed claims.

Meal coupons: Many companies provide their employees with subsidised meal coupons in their cafeterias. Such costs incurred by companies in the form of subsidies are included in the CTC. Meal coupons are tax exempt provided it is not in the form of cash.

Mobile/Telephone bills: Telephone or mobile expenditure up to a certain limit is reimbursed by many companies through a billed claim, and is a taxable amount.

Medical reimbursements: Paid either monthly or yearly, for medicines and medical treatment. The entire amount is taxable. However, up to Rs 15,000 could be tax exempt, if bills are produced.

3. Retirement benefits

This is available to you only on retirement or resignation.

These include:

Provident fund: Employers contribute an amount equal 12 per cent to the provident fund account. This employer’s contribution though received only on retirement or resignation, is an expense incurred by the company every month and thus is included in your CTC.

Gratuity: Companies manage gratuity through a fund maintained by an insurance company. The payment towards the gratuity annually is sometimes shown in CTC.

4. Other benefits and perks

Leave travel allowance: It is the cost of travel anywhere in India for employees on leave. Tax exemption if allowed twice in a block of four calendar years.

Medical allowance: Some companies offer medical care through health facilities for employees and their families. The cost of providing this benefit to the employee could also form part of CTC.

Contribution to insurance and pension: Premiums paid by companies on behalf of employees for health, life insurance and Employees Pension Scheme, could form a part of the CTC.

Miscellaneous benefits: Other perks which companies include under CTC could be electricity, servant, furnishings, credit cards and housing.

Bonus: This is the benefit paid on satisfactory work performance for employee motivation. Though this amount is not assured to the employee, most companies include the maximum amount that can be paid as bonus, to the CTC. The two types of bonuses that are normally paid out are:

1. Fixed annual bonus: Paid on the basis of employee performance, either monthly or in most cases annually, it is a fully taxable amount.

2. Productivity linked variable bonus: Complete bonus amount is paid only on 100 per cent achievement of target, nevertheless it still is included as part of your CTC.

 

Moral of the Story :- Lessons learnt

Each company too has its own way of calculating the cost to company. Let us revisit Ravi’s case.

Ravi realised, that an attractive CTC does not necessarily indicate a heavy monthly take home. Benefits like training and development, whether undertaken by him or not was still considered part of his CTC. Here is what one should keep in mind:

One must take time to find out what the actual benefits are by asking for the break-up of the CTC so as to know the entitlement.

If you are just joining the company, try to negotiate with the HR as to opting out of some facilities in exchange for increasing the take home.

Understand the expenditure limits and tax angle of perks and benefits, and use them smartly.

Here is a Sample Salary Breakup of a MID – LEVEL Manager

080822082723_mid-level-manager

 

Thanks and Regards,

Pinal Mehta

Source:- Rediff Files

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Gratuity Act – Abstract

16 Nov

Gratuity Act

FORM ‘U’

ABSTRACT OF THE ACT AND RULES

1. Extent the Act.—The Act extends to the whole of India:

Provided that in so far as it relates to plantations a ports, it shall not extent to the State of Jammu and Kashmir. Section 1(2).

2. To whom the Act Applies.— The Act applies to (a) every factory, mine, oilfield, plantation, port and railway company; (b) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or mote persons are employed, or were employed, on any day of the preceding twelve months; and (c) such other establishments a class of establishments, in which, ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.
Section 1(3).

3. Definitions—-(a) “Appropriate Government” means (i) in relation to an establishment–

(a) belonging to, or under the control of, the Central Government,

(b) having branches in more than one State,

(c) of a factory belonging to, or under the control of, the Central Government,

(d) of a major port, mine, oilfield or railway company, the Central Government,

(ii) in any other case, the State Government. Section 2(a).

(b) “Completed year of service” means continuos service for one year. Section 2(b).

(c) “Continuos Service” means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike or a lock-out or cessation of work not due to any fault of the employees concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Explanation I.—In the cease of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than–

(i) 190 days, if employed below the ground in a mine, or

(ii) 240 days, in any other case, except when he is employed in a seasonal establishment.

Explanation II,—- An employee of a establishment shall be deemed to be in continuos service if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during the year. Section 2(d)·

(d) “Controlling authority” means an authority appointed by an appropriate Government under Section 3. Section 2(d).

(e) “Family”, in relation to an employee, shall be deemed to consist of—

(i) in the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents and the widow and children, of his predeceased son, if any,

(ii) in the case of a female employee, herself, her husband, her children, whether married or unmarried, her dependent parents and the dependent parents of her husband and the widow and children of her predeceased son, if any:

Provided that if a female employee, by a notice in writing to the Controlling Authority, expresses to her desire to exclude her husband from her family, the husband and his dependent parents shall no longer be deemed, for the purposes of this Act, to be included in the family of such female employee unless the said notice is subsequently withdrawn by such female employee.

Explanation:– Where the personal law of an employee permits the adoption by him of a child, any child lawfully adopted by him shall be deemed to be included in his family, and where a child of an employee has been adopted by another person and such adoption is under the personal law of the person making such adoption, lawful, such child shall be deemed to be excluded from the family of the employee.
Section 2(h).

4. Nomination.—(1) Each employee, who has completed one year of service, after the commencement of the Payment of Gratuity (Central) Rules, 1972 shall make within thirty days of completion of one year of service, a nomination. Section 6(1) read with Rule 86(I1)

(2) If an employee has a family at the time of making a nomination, the nomination shall be made in favour of one or more members of his family and any nomination made by such employee in favour of a person who is not a member of his family shall be void. Section 6(3).

(3) If at the time of making a nomination, the employee has no family, the nomination can be made in favour of any person or persons, but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make within 90 days fresh nomination in favour of one or more members of his family. Section 6(4) read with Rule 6(3).

(4) A nomination or a fresh nomination or a notice of modification of nomination shall be signed by the employee or, if illiterate, shall bear his thumb-impression in the presence of two witnesses, who shall also sign a declaration to that effect in the nomination, fresh nomination or notice of modification of nomination as the case may be. Rule 6(5).

(5) A nomination may, subject to the provisions of sub-sections (3) and (4) of Section 6, be modified by an employee any time after giving to his employer a written notice of his intention to do so. Section 6(5).

(6) A nomination or fresh nomination or notice of modification of nomination shall take effect from the date of receipt of the same by the employer. Rule 6(6).

5. Application for gratuity.—(1) An employee who is eligible for payment of gratuity under the Act, or any person authorised, in writing, to act on his behalf, shall apply ordinarily within thirty days from the date gratuity becomes payable:

Provided that where the date of superannuation or retirement of an employee is known, the employee may apply to such employer before thirty days of the date of superannuation or retirement. Rule 7(1).

(2) A nominee of an employee who is eligible for payment of gratuity shall apply, ordinarily within thirty days from the date the gratuity became payable to him, to the employer. Rule 7(2).

(3) A legal heir of an employee who is eligible for payment of gratuity shall apply, ordinarily within one year from the date the gratuity became payable to him, to the employer. Rule 7(3).

(4) An application for payment of gratuity filed after the expiry of the periods specified above shall also be entertained by the employer if the applicant adduces a sufficient cause for the delay. Rule 7(5).

6. Payment of gratuity.–(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years–

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Disablement means such disablement which incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement. Section 4(1).

(2) 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 based on the rate of wages last drawn by the employee concerned:

Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:

Provided further that in the case of an employee employed in a seasonal establishment, the employer shall pay the gratuity at the rate of seven days’ wages for each season. Section 4(2).

(3) The amount of gratuity payable to an employee shall not exceed twenty months wages. Section 4(3).

7. Forfeiture of gratuity.–(1) The gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.

(2) The gratuity payable to an employee shall wholly be forfeited–

(a) if the services of such employee have been terminated for his riotous or disorder conduct or of any other act of violence on his part, or

(b) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment. Section 4(6).

8: Notice of opening, change or closure of the establishment.–(1) A notice shall be submitted by the employer to the controlling authority of the area within thirty days of any change in the name, address, employer or nature of business. Rule 3(2).

(2) Where an employer intends to close down the business he shall submit a notice to the controlling authority of the area at least sixty days before the intended closure. Rule 3(3).

9. Application to Controlling Authority for direction: If an employer—

(i) refuses to accept a nomination or to entertain an application for payment of gratuity, or

(ii) issues a notice either specifying an amount of gratuity which is considered by the applicant less than what is payable or rejecting eligibility to payment of gratuity, or

(iii) having received an application for payment of gratuity, fails to issue notice within fifteen days; the claimant employee, nominee, or legal heir, as the case may be, may within ninety days of the occurrence of the occurrence of the cause for the application, apply to the controlling authority for issuing a direction under sub-section (4) of Section 7 with as many extra copies as are the opposite party:

Provided that the controlling authority may accept any application on sufficient cause being shown by the applicant, after the expiry of the period of ninety days. Rule 10.

10. Appeal.— Any person aggrieved by an order of the controlling authority may, within sixty days from the date of the receipt of the order, prefer an appeal to the Regional Labour Commissioner (Central) of the area, who has been appointed as the appellate authority by the Central Government:

Provided that the appellate authority may, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal within the said period of sixty days, extend the said period by a further period of sixty days. Section 7(7).

11 Machinery for enforcement of the Act or Rules in Central sphere:—All Assistant Labour Commissioners (Central) have been appointed as Controlling Authorities and all the Regional Labour Commissioners (Central) as Appellate Authorities.

12. Powers of the Controlling Authority:— The Controlling Authority for the purpose of conducting an inquiry as to the amount of gratuity payable to an employee or as to the admissibility of any claim of, or in relation to, an employee for payment of gratuity, or as to the person entitled to receive the gratuity, shall have the same powers as are vested in a court, under the Code of Civil Procedure, 1908, in respect of the following matters, namely—

(a) enforcing the attendance of any person or examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits; and

(d) issuing commissions for the examination of witnesses. Section 7(5).

13. Recovery of gratuity.–If the amount of gratuity payable is not paid by the employer, within the prescribed time to the person entitled thereto, the controlling authority shall, on an application made to it in this behalf by the aggrieved person, issue a certificate for that amount to the Collector, who shall recover the same, together with compound interest thereon at the rate of nine per cent per annum, from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled thereto.
Section 8.

14. Protection of gratuity: No gratuity payable under the Payment of Gratuity Act and the rules made thereunder shall be liable to attachment in execution of any decree or order of any civil, revenue or criminal court. Section 13.

15. Penalties for offences.-(1) Whoever, for the purpose of avoiding any payment to be made by himself or of enabling any other persons to avoid such payment, knowingly makes or causes to be made any false statement or false representation, shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both. Section 9(1).

(2) An employer who contravenes, or makes default in complying with, any of the provisions of the Act or any rule or order made thereunder shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to one thousand rupees, or with both:

Provided that if the offence relates to non-payment of any gratuity payable under the Payment of Gratuity Act, the employer shall be punishable with imprisonment for a term which shall not be less than three months unless the court trying the offence for reasons to be recorded by it in writing, is of opinion that a lesser term of imprisonment or the imposition of a fine would meet the ends of justice. Section 9(2).

16. Display of Notice: The employer shall display conspicuously a notice at or near the main entrance of the establishment in bold letters in English and in the language understood by the majority of the employees specifying the name of the Officer with designation authorised by the employer to receive on his behalf notices under the Payment of Gratuity Act or the rules made thereunder. Rule 4.

17. Display of Abstract of the Act and Rules: The employer shall display an abstract of the Payment of Gratuity Act and the rules made thereunder in English and in the language understood by the majority of the employees at a conspicuous place at or near the main entrance of the establishment. Rule 20.

Regards,

Pinal Mehta