What is Gratuity?
Gratuity is a monetary benefit paid by an employer to an employee as a token of appreciation for long-term service. It is governed by the Payment of Gratuity Act, 1972.
⇒ Gratuity becomes payable when an employee:
⇒ Resigns
⇒ Retires
⇒ Passes away or becomes disabled
⇒ Or their services are otherwise terminated
✅ Eligibility: The employee must have completed at least 5 years of continuous service with the same employer (except in case of death/disability).
How is Gratuity Calculated?
For employees covered under the Act:
• Gratuity = (15/26) × Last Drawn Salary × No. of Years of Service
• “Last Drawn Salary” = Basic + Dearness Allowance
• 26 = Working days in a month
• Fraction of a year > 6 months is counted as 1 full year
What is Gratuity Law Compliance?
Gratuity compliance ensures your company follows all legal requirements under the Gratuity Act, including:
⇒ Timely payment of gratuity to eligible employees
⇒ Maintaining proper records and service history
⇒ Filing necessary forms and notices with authorities
⇒ Registering with the appropriate controlling authority if needed
⇒ Avoiding delays, disputes, or legal claims
Employer Responsibilities
- Issue Form F to each employee (nomination form)
- Maintain service records and gratuity calculation sheets
- Pay gratuity within 30 days of it becoming due
- File Form L, Form M, and Form N (for disputed cases or payments made)
Penalties for Non-Compliance
⇒ Interest @ 10% p.a. for delayed payment
⇒ Penalty up to ₹10,000 and/or imprisonment for serious default
⇒ Legal proceedings initiated by labour authorities or employees
Why Gratuity Compliance is Important
✅ Legal Safety – Avoids penalties, legal disputes, or court cases
✅ Employee Trust – Recognizes and rewards loyalty fairly
✅ Smooth Exit Process – Avoids conflict during resignations or retirements
✅ Professional Image – Reflects a responsible and law-abiding organization
Our Gratuity Compliance Services Include:
⇒ Setting up gratuity eligibility systems
⇒ Automated gratuity calculations
⇒ Preparation of nomination forms and letters
⇒ Handling gratuity payments and documentation
⇒ Liaising with authorities in case of audits or disputes
⇒ Advisory on gratuity funding and insurance options (e.g., LIC Gratuity Fund)