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Ex-gratia is most often used in a legal context. When something has been done as ex gratia, it has been done voluntarily, out of kindness or grace. In law, an ex gratia payment is a payment made without the giver recognizing any liability or legal obligation.
Most of the cases Ex-gratia is paid along with annual bonus, since the Payment of Bonus Act, puts a cap on 20% bonus to employees, the employer and employee agree to pay a higher amount than 20%, and coined a new term of ex-gratia, which is paid along with Bonus.
For the employees in service industries like Hospitals, social work organizations etc., where there is “No profit No loss” concept, employees are provided with Ex-gratia. The organization gives ex-gratia for the employees, because they are not covered under Payment of Bonus Act.
For the payment of ex-gratia, there is no ceiling and also the % may get varied from year to year and is purely at the discretion of the management.
Difference between Bonus Vs Ex-gratia:
Bonus is a payment made beyond the salary and perks and usually linked to productivity or performance. In the context of business, it literally means “Extra” which is more than regular salary or wage. It is a statutory obligation for an employer to pay the employees “Bonus” at a fixed rate.
The minimum bonus amount must be at 8.33% and maximum must not go beyond 20% of employee’s wages.
Ex-gratia is given as a mark of compassion voluntarily. Usually for the employees who are not covered under the Bonus Act, Ex-gratia is paid.
Non profitable organizations such as Hospitals, Social work organizations, NGOs etc are not covered under Bonus Act, 1965.
Although for the employees who comes under the Bonus Act, if the employer wishes to pay the beyond 20% of wages, it is given in the name of Ex-gratia.
Circumstances where the Ex-gratia is paid:
- Employer may wish to pay some amount (As acknowledgement of the worker’s contribution) out of the revenues of the firm in case the profits do not support to pay the bonus.
- On completing a specific period of existence, executing a large export order or any other event which marks significance, employer may pay some amount as Ex-gratia.
- Any other reason that is NOT a binding on the employer, but the employer “wishes” to make such a payment to employees.
- When the employer wishes to pay the employees an amount after paying the maximum bonus of 20% on wages.
Can Ex-gratia be included in to annual CTC?
Annual CTC means the total cost incurred on an employee in a year. In a management perspective, the employer may consider it for arriving at a cost to employ so many employees at any given point of time. It is purely at the discretion of the management.
When you consider the character of the payment (being ex-gratia) it should not be a part of CTC. It may be so, in particular year when it is paid. If it is going to be recurred every month/year, it loses the character of being Ex-gratia and can be called as some other earning head which can be included in CTC and paid regularly.
Related Topics: Bonus
