Hello, in this post we will discuss all about ex gratia. We will cover the following:
- What is ex gratia?
- Difference between ex-gratia and bonus
- When to pay ex-gratia to employees?
- Calculation of ex-gratia
- Can Ex-gratia be included into annual CTC?
What is Ex Gratia?
Ex-gratia is a voluntary payment that is done by the employer to an employee who is not eligible for the facilities of bonus. Ex-gratia can also be considered as a gratitude by the management to a worker/employee towards their work which is given out of free will when the company is making profits.This is applicable for those employees who are earning more than 21,000 Basic and DA per month.
Ex-gratia payments do not fall under the limit of the Employee’s Provident Fund Act, 1952 or Employees’ State Insurance Act, 1948, as such payments are not considered as wages for contribution under the Act unless paid within an interval of two months.
Difference between ex gratia and bonus
|It is paid as a mark of compassion voluntarily||This is based on the productivity and performance of the employee|
|There is no ceiling and also the % may get varied from year to year||The minimum bonus amount must be at 8.33% and maximum must not go beyond 20% of employee’s wages.|
|Usually, for the employees who are not covered under the Bonus Act, Ex-gratia is paid.||Bonus is paid who are covered under the Payment of Bonus Act|
When to pay ex-gratia to employees?
Employers need to pay ex-gratia to the employees in the following cases:
- In non-profit organizations like hospitals, social work organizations, NGO’s, etc. as they are not covered under the Bonus Act.
- Also, for the employees who come under the Bonus Act and wishes to pay ex-gratia beyond 20% of wages, it is given in the name of Ex-gratia.
Calculation of ex-gratia
It is calculated similar to Bonus on Basic+DA earned for the month. As the calculation doesn’t have a fixed percentage, the amount keeps deferring and it depends from one company to another.
Can Ex-gratia be included into annual CTC?
Annual CTC (Total cost of the company) refers to the total cost incurred on an employee in a year.
As per the company point of view, ex gratia should not be part of CTC due to consideration of the nature of payment (being ex gratia), which has to be paid only in a particular year to the employee. If the employees are going to receive the payment which is recurring in nature for every month or year, then it loses the character of being Ex-gratia and can be called as the other earning heard.