New HR Manager Seeking Guidance on Managing Employee Gratuity Funds

I have been appointed as an HR Manager in an organization. I don't have any experience in HR as I am a fresher. My boss has asked me to look into the Gratuity issue of the employees. I know that Gratuity is to be paid to every employee leaving the organization having more than 5 years of employment with that very organization. Now, my query is out of which funds does an employee need to pay Gratuity? Do I need to tie up with an insurer to pay a monthly contribution for employees in the Gratuity fund head? Kindly help me out.

Regards.

I am not a legal expert, but I will share what I know. Your company needs to register under the Gratuity Act. Every year, the company should book gratuity funds based on actuarial values by the company's Chartered Accountant and input provided by HR at the beginning of the financial year.

Generally, gratuity is maintained at the corporate office. I hope this explanation is clear to you. I would advise you to go through the act to understand who is eligible for gratuity.

Regards.

There is no registration under the Gratuity Act. Employers have to pay gratuity. Taking insurance for gratuity is their choice.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Gratuity Act Notice Requirement

There is a provision under the Gratuity Act that every establishment must send a notice of commencement to the authority under the Gratuity Act within 30 days of the commencement of the organization.

There is no specific fund specified in the act from which gratuity is paid. Depending on the size of the organization, you need to create your own fund. You need to sit and work this out based on your conditions. If the business is large (and profit margins are good), and the number of employees working more than 5 years is low, you may not need a fund as the business can afford to pay gratuity to the few who leave. However, in order to ensure smooth cash flow and avoid disruption in case a large number leave at the same time, companies prefer to set aside some money for this. Ask your finance team how they can do it.

Remember that anyone dying while in employment is entitled to gratuity even if they have not completed 5 years. Further, there is a provision in the act for compulsory insurance, which I think is for larger companies. You can get in touch with LIC or one of the private insurance companies and check out their schemes. You get some tax benefits also for putting money into these schemes.

In creating your fund, remember that gratuity is based on the last drawn salary. So, you need to reset the amount upwards every year.

Regards.

Gratuity Payment Eligibility

Gratuity will be paid after the completion of 4 years and 240 days of the fifth year.

Regards,
Govind Pawar

I am an employee working in a PSU on a contractual basis. Regarding gratuity, I have a confusion. When can an employee claim gratuity? Is a contractual employee also entitled to the benefit of gratuity?

Is it necessary to have 5 years of regular service to be eligible for the benefit of gratuity?

I worked for 3 years under a contractor, and after three years, a new contractor took over. However, the new contractor showed our joining date as one day later than the actual date. (The original date of joining should be 1st April, but he showed it as 2nd April.) Is there any reason for this discrepancy? Are we still eligible for gratuity?

Thank you.