How Should I Communicate Gratuity Details to Management and Employees?

In our establishment, we have started providing gratuity to our employees. More than 10 employees have completed 5 years of service. I kindly request suggestions on how to communicate these details to the management and employees. Your prompt response is appreciated.

Regards,
Saravanan M

We give gratuity to employees after completing 5 years of service in the organization. Gratuity is calculated based on 15 days' salary of the last month's salary drawn, considering Basic + DA. The maximum limit for gratuity is 3.5 lakh.

If a person is dismissed for fraud or theft, they are not eligible for gratuity, even if they have completed 5 years of service. However, this condition should have been specified in the offer letter.

Formula for Calculating Gratuity

The formula for calculating gratuity is as follows:

Formula:
(Basic + DA / 26) x 15 x Number of years of service

For example:
Basic = 3500
DA = 2000
Number of years = 7 years

Gratuity = (3500 + 2000 / 26) x 15 x 7
Gratuity = 22,211.54

I hope the information I have provided is useful to you.

Regards,
Amol

You can calculate the gratuity payable and all other details for all such employees and then present them to the management. The formula given by the other member is correct. Additionally, you have to calculate gratuity based on the last drawn salary.

Regards,
Neha

The gratuity payable ceiling has been increased from 3.5 to 10 Lakhs (Ref. Payment of Gratuity (Amendment) Act, 2010 (No. 15 of 2010), dated 17-5-2010).

Thank you.

Talk to LIC of India; they have a separate division for gratuity. They do a good job of getting a policy ready as well as managing the funds.

Gratuity is payable when leaving the service after completing 5 years of service. You are not required to provide gratuity to employees who have worked for more than 5 years.

Regards,
D. Gurumurthy
HR/IR Consultant

You mentioned that gratuity is given to employees after completing five years of service. Could you please clarify this for me? Are you providing gratuity to employees after they complete five years of service, even if they are still employed, or only when they leave the organization permanently? Gratuity should be paid only when an employee leaves the service permanently, not if they continue in service beyond five years. It should be paid only once at the end of the service period and not during the service after completing a five-year term. I have interpreted your statement literally and provided this explanation. If you are already following this practice, please disregard this message.

Thank you and regards,

Hi, a small confusion in your line, sorry. Actually, we started this year only to give gratuity to employees as per the Payment of Gratuity Act. I need to prepare the gratuity policy and submit it to management. Kindly clarify or provide any gratuity manual samples to prepare as soon as possible.

Keenly awaiting your reply.

Regards,
Saravanan.M

Gratuity is payable only when an employee's services are permanently terminated due to resignation, retrenchment, incapacity due to accidental injury, death, etc. While gratuity is payable after the completion of 5 years of continuous service, this condition of 5 years of continuous service is not applicable if the employee dies while in service. Gratuity is payable in the event of death even if the employee has not completed five years of service.

Preparing a Gratuity Policy

For preparing a gratuity policy for your firm, you may please study similar policies of public sector undertakings like the Food Corporation of India, nationalized banks, cooperative banks, etc. They have established policies that you may adopt with suitable changes. Some employers now resort to gratuity policies of the Life Insurance Corporation of India. They pay a periodical premium to the LIC. When gratuity becomes payable to an employee, the LIC meets the liability. You may contact the nearest LIC office to get more details from them.

Thanks and regards,

It may be noted that the above calculation is 100% accurate. It is correct that gratuity is calculated based on the last drawn salary; however, only the components of basic + DA should be considered, and all other wage components should not be included. Lastly, the working days for each year should be 240 days, not fewer than that.

Thanks & regards,
Sumit Kumar Saxena

Dear Shenbagarajan,

I am from Maharashtra. This morning, I read news on the front page of the Marathi Daily, Divya Marathi. The news states that "Gratuity eligibility will change to three years from five years, and if an employee changes employment after three years of service, then it is the responsibility of the existing employer to transfer the amount of gratuity to the new employer." I was really surprised by this news, but Divya Marathi is the best Marathi newspaper in Maharashtra to my knowledge. Is the government going to amend the PAYMENT OF GRATUITY again? All seniors, please check with all possibilities and post your findings.

Mangesh Wakodkar
Aurangabad.

Hi, I am confused. If anybody completes 7 years and wants to leave the organization, will they be eligible for gratuity or not? Please clarify my doubt.

Regards,
Prakash M

LIC calculates the amount to be paid or deposited based on the length of service, salary, retirement age, etc., of the employees. Certainly, it is beneficial to both management and employees. Full gratuity is insured and will be paid in case of the death of an employee while in service. Then management can avail income tax rebate on the amount deposited with LIC.

Regards,
Mohan KK

Dear Prakash Ji,

Why the confusion? It is simple. The employee would be eligible for gratuity for 7 years of service, calculated at 15 days of salary for each completed year at the last pay rate plus admissible dearness allowance. The formula for calculating this would be 7 * (Pay + DA) * 15 / 26.

Best regards

Hi, what is the eligibility to receive the gratuity amount? Can a terminated employee receive the amount if he/she has completed five years of service?

Regards,
Saravanan M

Dear Saravanan Ji,

More than five years of continuous service with honesty is the eligibility criterion for the payment of gratuity. If the termination is due to dishonesty or misconduct (removed from services on these grounds), then gratuity is not payable.

Regards,
Saravanan.M

Gratuity Registration and Payment Methods

My company plans to give gratuity to employees starting this year. We are already registered under the Shops & Establishments Act, but do we need to register specifically for gratuity as well? We intend to tie up with LIC for a gratuity group scheme.

Additionally, we also need to know if there are any constraints if we decide to give gratuity amounts manually to relieving employees (i.e., in full final settlement, separately via cheque, or cash). We operate under the Tamil Nadu Shops & Establishments Act.

Looking forward to your reply!

Thanks & Regards,
Saravanan M

Dear Saravanan Ji,

I suggest that you contact the nearest LIC of India office to inquire about their gratuity policy and carefully review their terms and conditions before making a final decision. This will help you make an informed choice.

Thanks & regards,

Hi, I have some additional points to add to your post:

1. In the event of an employee's death, the gratuity amount can be paid, regardless of the employee's tenure.
2. Furthermore, the gratuity amount may be seized or forfeited in cases of serious misconduct by the employee.

Regards,
Sandeep

Please see Section 4 of the Payment of Gratuity Act. Gratuity can be forfeited (this is the term used in the section) for the reasons specified in that section. Gratuity cannot be forfeited for any other reason.

With regards,

Just a small correction, sir. The maximum ceiling has been raised to 10 lakhs, and there is no upper limit; however, any amount above 10 lakhs will be subject to taxation.

The employer, if gracious enough, can pay any amount as gratuity exceeding ₹10 lakhs. The fact is that under the Payment of Gratuity Act, the employer cannot be compelled to make payment of more than ₹10 lakhs as gratuity. Authorities appointed under the Payment of Gratuity Act to decide disputed claims do not have the authority or power to award more than ₹10 lakhs as gratuity.

Regards