What is Gratuity & Payment of Gratuity Act?
Gratuity is a statutory monetary lump-sum benefit paid by an employer to an employee upon exit after completing at least 5 years of continuous service in the organization.
Detailed Explanation
Under the Payment of Gratuity Act, 1972, gratuity applies to all establishments with 10 or more employees. It is calculated based on the employee last drawn basic salary and years of completed service (with periods over 6 months rounded up to the next full year), capped at ₹20,00,000.
Calculation Blueprint & Formula
Gratuity = (15 × Last Drawn Basic Salary × Completed Years of Service) ÷ 26Why It Matters for HR & Finance Leaders
- Legal obligation enforceable by the Controlling Authority under the Gratuity Act
- Crucial component of full and final (F&F) settlement for long-tenured employees
- Organizations must maintain monthly actuarial provisions on their balance sheet
Kirxa automatically tracks continuous tenure across employee profiles, calculates exact gratuity payable during exit workflows, and flags eligibility automatically.
Frequently Asked Questions
Is 5 years mandatory for gratuity in case of death or disability?
No. In the unfortunate event of death or permanent disability of an employee, the 5-year continuous service condition does not apply.