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Clarifications on Gratuity
Human Resources » Compensation & Benefits

Chrm Message From: reshma bora Total Posts: 17 Join Date: 04/12/2008
Rank: Executive Post Date: 14/02/2009 23:58:47 Points: 85 Location: India

Dear All,

Need a few clarifications on Gratuity. We are a company in Bangalore. The following are my queries:

- Is it a statutory requirement to pay Gratuity or is it optional and at company’s discretion?
- Do we have to set aside the requisite amount every month or only pay it when someone becomes eligible for Gratuity? Where do we put this amount that we set aside? Should we open a separate Bank Account for it?
- If an employee leaves before 5 years, can we take the money accumulated for him and put it back into working capital?
- The account opened to set aside this amount – is it controlled by a statutory authority or can we maintain it by ourselves?

These are my current doubts. Would appreciate some clarity in this area from those who have experience. Kindly revert as it is a bit urgent.

Thank you all,


Chrm Message From: dadouch Total Posts: 32 Join Date: 04/12/2008  
Rank: Executive Post Date: 15/02/2009 00:07:19 Points: 160 Location: India

1.As per the labour act Gratuity is statutory benifit that employees has to give to his employees those who cross 5 yrs of service with the same industry.

2. It depends on the kind of organisation we are working for , and practices, Usually companies pay gratuity amount once in year, or even half yearly

3. Most of the companies accumulate their garatuity amount with LIC and now many other financila institutes are providing such facilities. Advantage of having collbration with LIC is , in case of death of an employee who has covered for gratuity and has not completed his service of 5 yrs, will also get the further benifits , there are certian calclulation ,But LIC ensures that.

4. Inacse the of employees covered under Gratuity, , in case they serve the organisation for less than 5 yrs then the ammount already accumulated can be withdrawn and considered working capital.



Chrm Message From: Jyoti Rani Total Posts: 67 Join Date: 04/12/2008  
Rank: Manager Post Date: 16/02/2009 04:36:37 Points: 335 Location: India

Hi Reshma,

You almost all points are well answered by the other respective member.

For point 4, the account opened......, you can also find out the same from"local controlling authority of your area" and figure out about the the acconts opened/changed i.e. Form W/B (employee nomination are submitted in Form F).



Chrm Message From: gln30514 Total Posts: 3 Join Date: 04/12/2008  
Rank: Beginner Post Date: 16/02/2009 22:38:49 Points: 15 Location: India

As per the provisions of the payment of Gratuity Act-1972 every employer of the organisation for which the Act  is  applicable ( refer the definition of the Act)   it is a statutory when an employee gets seperated from the company on completion of 5 years of service ( except in case of death minimum 5 years is not must).

As of now the maximum amount of Gratuity payable is Rs.3.5 Lakhs.

LIC /Banks have formulated Group Gratuity schemes . Negotiatie with them  and  taking into account the no. of employees and the lilley  payment liability  based on current /future salaries over a period of time  you can tieup and take a policy. You woould furnish the llisit of employees, date of birth, grade and pay details etc. to full fill  this  stautory obligation, based on this liability  the group grautity polcy can be obained.

Actual Payment of Grautity to an employee/ex-employee arises only when the said individual gets seperated from the company. either  due to resignation/superannuation (retirement) /death.

 If you were company is not coming within the definition of Act, it is employer's choice to have the same or different or not to have.








Chrm Message From: paulthomas Total Posts: 43 Join Date: 04/12/2008  
Rank: Executive Post Date: 18/02/2009 09:51:55 Points: 215 Location: India


I am forwarding the Answers:

1. Its statutory requirement to pay gratuity to those employees who works for more than 5 yrs.

2. The amount is paid at the time when the employee leves the job and as per calculation suggested in Payment of Gratuity Act. Its advisable to earmark a fund periodically say halfyearly, and keep it in separate bank account. Subsequently this fund can be invested in securities market too, preferably in safe bonds.

3. If any employee leaves before 5 yrs then he is not eligible to gratuity and corresponding amount can be utilised by the company as itmay deem fit. Working capital is one of the options available to the company.

4. The account opened for the purpose of gratuity can be maintained by the company and also its advisable to get it audited by an independent chartered accountant.

In case of further clarifications please write to me.

Paul Thomas

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