TCS clarifies gratuity exclusion, says employees will see no reduction in pay

TCS’ appraisal letters have triggered employee reactions, with some alleging reductions in CTC and downgrades in performance bands. Discussions have also intensified around a drop in take-home salaries following changes linked to the implementation of new labour codes.

The debate concerns the exclusion of gratuity from cost-to-company (CTC) under TCS’s revised compensation structure. The company said the revised salary framework was designed around three key principles: compliance with new labour codes, standardisation of wage structures across its India workforce, and protection of employee take-home salaries while retaining flexibility for tax efficiency.

TCS denied any reduction in employee compensation. “There has been no reduction in employees’ gross pay or net pay,” a TCS spokesperson told TOI.

Several employees questioned why gratuity was excluded in the latest compensation letters. TCS said employees may see a higher gratuity value reflected in their June payslips following changes under the Code on Social Security, 2020, which links gratuity calculations to “wages” rather than only basic pay.

Documents reviewed by TOI show that under the revised wage structure, components such as basic pay, city allowance and personal allowance are classified as part of wages under the new labour codes. In contrast, house rent allowance (HRA), conveyance allowance, provident fund (PF) contributions, superannuation / NPS contributions and statutory bonus are classified as exclusions.

Performance-linked variable pay, company-paid health insurance premiums, ESIC contributions and other performance-based incentives are treated separately and are not considered part of wages.

TCS said employees would receive gratuity under either the TCS Gratuity Scheme or the Social Security Code framework, depending on whichever provides a greater benefit. The gratuity multiplier will depend on an employee’s tenure as of July 1 this year, and some employees may not see any change if the existing TCS gratuity structure remains more beneficial.

Addressing concerns around the exclusion of gratuity from CTC, the spokesperson said: “Earlier, gratuity was shown as part of CTC. Under the new wage code, gratuity accruals have increased because calculations are now linked to wages rather than just basic salary. Employees will see higher gratuity accruals reflected in their pay slips.”

The company added that gratuity was excluded from CTC as a conservative measure because gratuity payouts remain subject to a statutory cap. Employees comparing compensation should remove gratuity from previous-year CTC calculations and compare on a like-for-like basis, it said.

In its latest appraisal cycle, TCS rolled out average salary increases of around 5% across the company, with increments varying based on performance ratings. Employees in the A+ category received salary hikes ranging from 9% to 12%, while those in the A band saw increases of around 5% to 8%.

TCS’ internal compensation documents also show that employee performance pay remains linked to work-from-office (WFO) compliance and deployment metrics. Employees with a WFO index of 85% or above receive 100% of their performance pay, while payouts progressively decline with lower compliance levels and fall to zero for those below 25%. The policy also states that deployment index impact is applied sequentially on the previous quarter’s average performance pay after accounting for WFO compliance. When TOI reached out to TCS, its spokesperson said: “WFO is still linked to the variable pay component with some rationalisation that is beneficial for employees.”