Gratuity Dilemma: How Can We Manage Employee Claims with Salary Increases?

I am working in a manufacturing organization. We want to reduce our liability to employees by paying gratuity during service. If we pay gratuity for past years, there should not be any claim regarding gratuity if the salary increases in the current year.

Regards

As per the law, payment of gratuity shall be calculated on the last drawn wages/salary. You cannot make new policies on gratuity.

You may go for LIC's Group Gratuity Scheme. They work on a very low premium, i.e., around 2.5% of the annual basic salary compared to the gratuity act, which is 4.81% of the total annual basic salary. This will reduce your headache of arranging funds for gratuity. Additionally, in the case of death, LIC pays for gratuity until the age of retirement. You can inquire about this scheme at your local LIC office.

In our country, gratuity is payable only at the end of the service, not during the service. This is a universal concept, so in Pakistan, the same basic principle would be applicable. Even if you pay gratuity to your employees during service at the current rate, at the termination of service of an employee, gratuity would be payable as per your gratuity act. The option of a group insurance policy of LIC of India is very good in India, but it may not work in Pakistan. You may check similar options in your country.

Thanks and regards,

Paying gratuity during the course of service contradicts the whole philosophy of gratuity, which is meant as a reward for good service at the end of employment. The law in India prohibits this practice.

Regards,