Home/ Companies / News/  Order on gratuity in HDFC Bank case may hit corporates

Mumbai: India’s biggest private lender HDFC Bank Ltd and several other companies may be forced to shell out more in gratuity payments to employees following an order by a labour official in Kerala.

At the centre of the case is a petition filed by a former employee of HDFC Bank before the controlling authority under the Payment of Gratuity Act, 1972.

P.V. Unnikrishna Pillai, an employee who worked for close to 16 years before quitting his job in 2022, disputed the amount of gratuity he received from the bank. The controlling authority is a government official responsible for the administration of the Act.

He filed the appeal on 8 June 2022, arguing that the bank must also include “personal pay" while calculating his gratuity, and not just his “basic pay".

The controlling authority asked HDFC Bank to pay an additional 7.22 lakh with a 10% simple interest. This was over and above the gratuity payment of 5.95 lakh already paid by the bank. While the order was delivered in July 2022, it was sent to the bank and the petitioner only on 20 January this year.

According to the Act, wages used to calculate gratuity include all remunerations earned by an employee—dearness allowance among them. It does not, however, include any bonus, commission, house rent allowance, overtime wages and any other allowance. Pillai argued that his “personal pay" is part of his wage and not an allowance.

“In the instant case, it is pertinent to note that with respect to the components of the salary of the applicant, the term used by the employer is ‘personal pay’ instead of ‘personal allowance’ and all other components of the salary are specifically termed as ‘allowances’," Aneish Ravindra, assistant labour commissioner, Ernakulam, said in his order.

If upheld by higher authorities, experts said, this order would affect how much gratuity employers pay—not just banks and financial institutions, but other organizations as well.

Any employee who has worked for five continuous years at an organization is entitled to gratuity.

“This order would certainly encourage other employees to quote the Kerala Controlling Authority order as a precedent and ask for inclusion of ‘personal pay’, or for that matter, any other head as a component in the term ‘wages’ and accordingly claim a larger gratuity amount," said Wasim Beg, a partner at Luthra and Luthra Law Offices India.

On the other hand, Beg said, employers would be well-advised to revisit the terms of the contract with employees and clearly specify what would constitute ‘wages’ for calculating gratuity.

A compensation consultant said on the condition of anonymity that if this indicates that the courts believe that the computation of gratuity should be based on not just basic salary but also other components of pay, then it is almost akin to having the wage code implemented.

After receiving the order, Pillai sent an email to Vinay Razdan, chief human resources officer at HDFC Bank, on 28 January. On 10 February, he received a response from K.P. Narayanan, regional head, and human resources business partner (Tamil Nadu, Kerala and Pondicherry). The reply said that the bank had decided to file an appeal against the order.

“We will be filing the appeal within 60 days, the time limit prescribed under the Act. Since the order of the Controlling Authority has not become final, your demand for payment of the amount as ordered by the Controlling Authority cannot be acceded to," Narayanan said.

Experts said that the bank has to first appeal before the deputy chief labour commissioner (Central) in Kochi before approaching the high court.

An email sent to a spokesperson for HDFC Bank seeking responses remained unanswered till press time.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Updated: 06 Mar 2023, 06:21 AM IST
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