Graduaty Policy
What is Graduaty Policy ?
The Act provides for payment of gratuity at the rate of 15 days wage s for each completed year of service subject to a maximum of Rs. ten lakh. In the case of seasonal establishment, gratuity is payable at the rate of seven days wages for each season.
Key aspects of gratuity policy:
Following are Key Features
Eligibility
Calculation
Payment
Exemptions
Nomination
Employer Obligations
Tax Implications
Covered (Employer with 10+ employees)
- Eligibility: Employees with 5+ years of continuous service are eligible for gratuity.
- Calculation: Gratuity is calculated based on the formula: (15 x Last Drawn Salary x Number of Years of Service) / 26.
- Exemptions: Gratuity payments are tax-exempt up to a certain limit.
- Continued Liability: Once an organization falls under the Act, it remains covered even if the employee count drops below 10.
Who should get gratuity?
Buy Graduity
As per the Payment of Gratuity Act, 1972 (the Act), it is mandatory for organisations with more than 10 employees to pay Gratuity to all employees who complete 5 continuous years of service, on their superannuation, retirement, resignation, death or disablement due to accident or disease.
Not Covered (Employer with less than 10 employees):
- Eligibility: Employees may still be eligible for gratuity based on their employment contract or company policy, but it’s not mandated by the Act.
- Calculation: If not covered by the Act, gratuity may be calculated differently (e.g., 15/30 instead of 15/26).
- No Statutory Obligation: The employer is not legally obligated to pay gratuity under the Act.
Benefits for Employees
- Financial Security:
Gratuity provides a lump sum payment upon retirement or resignation, which can be crucial for managing expenses and maintaining a comfortable standard of living, especially after leaving the workforce.
- Recognition of Service:
It acknowledges an employee’s dedication and loyalty to the company, boosting morale and job satisfaction.
- Tax Benefits:
Gratuity payments are often partially or fully exempt from taxes, up to a certain limit, allowing employees to retain more of their hard-earned money.
- Family Support:
In the unfortunate event of an employee’s death while in service, the gratuity provides financial support to their family, helping them manage the immediate aftermath and future needs.
- Long-term Investment:Group gratuity schemes offer long-term investment opportunities, allowing employees to accumulate wealth through investments in diverse asset classes.
Benefits for Employers:
- Employee Retention:The prospect of receiving gratuity motivates employees to stay with the company longer, reducing turnover and associated costs.
- Legal Compliance:Offering gratuity ensures compliance with the Payment of Gratuity Act, 1972, avoiding legal issues and promoting a positive work environment.
- Tax Deductions:Employers can claim deductions for contributions made to a gratuity fund, reducing their overall tax liability.
- Improved Employee Morale:Providing gratuity demonstrates appreciation for employees’ contributions, leading to increased job satisfaction and loyalty.
- Fund Management:Group gratuity schemes can offer expert fund management and investment advice, helping employers optimize their investments and manage their gratuity liabilities effectively.
- Liability Management:Group gratuity schemes help employers manage their gratuity liabilities by allowing them to set aside funds in advance and invest them to grow over time.
