Companies may have to rejig pay structure if Kerala gratuity ruling upheld

New Delhi: A ruling of the labour office in Kerala last year to include "personal pay" while computing gratuity payments could compel companies to restructure salaries or make higher gratuity payments if the order is upheld by higher authorities, say experts.

In response to a petition filed by a former employee of HDFC Bank, the controlling authority in Kerala ruled that the bank must include "personal pay" while calculating the petitioner's gratuity and not just his basic pay. This was because the employer had termed the component as "personal pay", not as a "personal allowance" - personal allowances are excluded while calculating gratuity payment. The controlling authority is a quasi-judicial body headed by a government official responsible for administration of Payments of Gratuity Act.

HDFC Bank had already made a gratuity payment of Rs 5.95 lakh to the petitioner PV Unnikrishna Pillai. As per the ruling, it has to pay an additional Rs 7.22 lakh to him.


An email query sent to HDFC Bank by ET did not elicit any response as of press time Monday.

"The controlling authority has ruled that personal pay is to be included as wages for gratuity calculation. This has potential to expand the definition of wages for computation of gratuity," said Saraswathi Kasturirangan, partner, Deloitte. "The question that organisations will now grapple with is whether a particular payment is an allowance or not, and what is the intent behind the payment or the nomenclature," she added.