ex-gratia - meaning, difference and calculation

Hello, in this post we will discuss all about ex gratia. We will cover the following:

What is Ex Gratia?

Ex-gratia means a payment made by the employer by their own choice voluntarily, out of kindness or grace under no obligation of any law.  It is a form of incentive.

Difference between ex gratia and bonus

Ex-Gratia 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

Ex-gratia is calculated similarly as Bonus on Basic+DA. As it does not have a fixed percentage, the amount keeps varying and it depends from one company to another.

Can Ex-gratia be included into annual CTC?

Annual CTC (Cost to company) means the total cost incurred on an employee in a year.

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, the year when it is paid. If it is going to recur every month / year, it loses the character of being Ex-gratia and can be called as some other earning head which the employer can include in CTC and paid regularly.

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