Understanding Interest on Delayed Gratuity Payments: Simple or Compound, and What Rate Applies?

Hi all, can someone please share a document that specifies the interest payable on delayed gratuity settlements?

Interest on delayed gratuity payments

As per Section 7(3)(A), if the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification, specify.

Section 8 of the Act

Section 8 of the Act specifies the following: If the amount of gratuity payable under this Act is not paid by the employer, within the prescribed time, to the person entitled thereto, the controlling authority shall, on an application made to it in this behalf by the aggrieved person, issue a certificate for that amount to the Collector, who shall recover the same, together with compound interest thereon at such rate as the Central Government may, by notification, specify, from the date of expiry of the prescribed time, as arrears of land revenue and pay the same to the person entitled.

As an employer, when delay in gratuity payments is being considered, whether simple or compound interest to be considered, and at what rate? Request your urgent help in this matter, thanks in advance.

Hi Lucy,

First of all, you should contact your local authorities like ALC and try to obtain a written policy regarding gratuity, including the interest rate. Find out what they have to say about this!

Timeline for Gratuity Payment

1. If an employee leaves their job voluntarily or due to retirement, the gratuity amount must be paid within 30 days from the date of exit.
2. If an employee is terminated or dies while in service, the gratuity amount must be paid within 30 days from the date of exit or death, as the case may be.
3. If an employer fails to pay gratuity on time, they may be liable to pay interest on the amount due. The rate of interest for delayed payment of gratuity is determined by the government and is subject to change from time to time.

Rate of Interest for Delayed Payment of Gratuity

The current rate of interest for delayed gratuity payment is 8% per annum.

Consequences of Delayed Gratuity

If an employer fails to pay gratuity on time, the affected employee can file a complaint with the controlling authority under the Payment of Gratuity Act, 1972. The controlling authority has the power to investigate and determine the amount of gratuity due to the employee, along with any interest or penalty. If the employer fails to comply with the order of the controlling authority, they may be subject to legal penalties and fines.

In addition to legal penalties and fines, delayed gratuity payment can also have a negative impact on the reputation and goodwill of the employer. This can affect their ability to attract and retain talent and may result in long-term damage to their business. Therefore, it is important for employers to ensure timely payment of gratuity to their employees to avoid legal and reputational consequences.

Regards,