Ex Gratia

Ex gratia is a Latin term meaning "by virtue of grace" or "out of goodwill." In the business and legal context, it refers to a voluntary payment made by an organisation or individual without any legal obligation. These payments are typically offered as a gesture of compassion or goodwill, often in cases involving hardship, damage, or claims where the payer is not legally required to provide compensation. For example, a company may offer an ex gratia payment to an employee after a layoff or to a customer who experienced an unfortunate incident, even if the company is not at fault.

Ex gratia payments are discretionary and vary in amount, depending on the situation. Although they are not mandated by law, they are often subject to taxation. Organisations may make such payments to maintain goodwill, protect their reputation, or express empathy in challenging situations. However, because ex gratia payments do not imply legal liability, they are generally made with clear documentation to avoid setting a precedent for future claims.

How to calculate ex gratia in salary?

Ex gratia is a voluntary payment made by an employer to an employee, often as a goodwill gesture, and isn’t legally required. The calculation varies based on company policy or specific situations like retirement, resignation, or layoffs.

Common methods to calculate ex gratia include:

1. Fixed amount: A predetermined sum decided by the employer.
2. Percentage of salary: For example, one month’s basic salary or a multiple of monthly salary (e.g., 1-3 months).
3. Based on years of service: A certain number of days’ or months’ salary per year of service.

Example:

If the company decides to give one month’s basic salary as ex gratia, and the employee’s basic salary is ₹40,000, then:
Ex gratia = ₹40,000

Always check your company’s policy or employment contract for specific calculations.