Payment of Gratuity
Understanding the importance of employee loyalty and long-term contribution is essential for every employer and HR leader aiming for consistent performance. But it’s equally important to acknowledge that with long service comes legal obligations.
The Payment of Gratuity Act 1972 requires employers to provide gratuity to eligible employees as a reward for their long and continuous service. However, for employers, this is not just a goodwill gesture; it’s a matter of strict legal compliance under Indian labour law.
What is the Payment of Gratuity?
Gratuity is an amount paid to employees as a token of appreciation for their long-term service. The Payment of gratuity Act 1972 governs this benefit and makes it a statutory requirement for covered establishments. Any organisation employing ten or more employees is required to comply with the Gratuity Act 1972.
Key Provisions Under the Gratuity Act 1972
As an employer, these are the provisions you need to be clear about:
Eligibility
To qualify for gratuity, an employee must have completed at least five years of uninterrupted service. However, this requirement is exempted in situations involving death or disability.
The formula for calculation
Gratuity is calculated as Gratuity = (Last drawn salary × 15 × Number of years of service) ÷ 26. Here, "salary" includes basic pay plus dearness allowance.
Time of Payment
Gratuity must be paid within 30 days from the date it becomes due. Any delay attracts interest and, in some cases, penalties.
Maximum Limit
As of current provisions, the maximum gratuity payable under the Payment of gratuity Act 1972 is ₹20 lakhs.
Employer Responsibilities Under the Act
For HR professionals and top management, it’s important to go beyond the basic calculation. Some key responsibilities include:
Ignoring these responsibilities can lead to unnecessary disputes, audits, or litigation. As employers, staying ahead of these issues is not just about avoiding penalties — it’s about creating a culture of trust and compliance.
How Our Firm Can Help
This is where our firm steps in. We assist employers, HR leaders, and factory managers in navigating the legal and operational aspects of the Payment of Gratuity Act 1972.
Our team specialises in helping you calculate liabilities and ensure end-to-end compliance under the Gratuity Act 1972. Our firm ensures your business is always on the right side of the law.