According to the Payment of Gratuity Act, 1972, every employer with 10 or more employee should pay Gratuity. The minimum Gratuity amount payable to each employee on cessation of service of minimum of 5 years is calculated at the rate of 15 days salary (a Day's salary is 1/26th of month's salary} for each completed year of service with a maximum amount of Rs. 1 million (equal to approximately USD 20,000/-). However, the employer can always give better benefits.
J. B. BODA can aid the employers by:
- Helping the company formulate a gratuity scheme Viz. Define benefits, contribution, formation of non-revocable Trust and appointment of Trustees
- Preparing draft Trust Deed & Rules for approval of the company representative
- Inscribing a Trust Deed & Rules on non-judicial stamp paper of appropriate value as per local laws along with a detailed letter on the company letterhead addressed to CIT and get it executed by the Company and the Trustees
- Receiving and submitting certified copies of the executed Trust Deed & Rules to CIT for approval.
- Following-up with CIT until approval is received and drafting of Deed of Variation as suggested by the CIT, if any
- Providing administrative guidelines with regard to opening of Bank A/c. in the name of the Trust, payment to Insurance Company, etc.
- Co-ordinating between insurer and the Company to install the scheme
Frequently asked questions
Is Gratuity payment mandatory?
Yes, according to the terms of The Payment of Gratuity Act, 1972, every employer is required to pay Gratuity to its employees.
What is the minimum service requirement for Gratuity payment?
According to the terms of The Payment of Gratuity Act, 1972, an employee has to complete 5 years of continuous service to become eligible for Gratuity except death and disability.
How is the Gratuity calculated?
15 days salary (last drawn monthly salary / 26 days x 15 days) for every year of completed service subject to maximum Rs. 1 million (equal to USD 20,000). However, higher benefit can be paid if desired.
Is it compulsory to disclose the Gratuity liability in a company accounts?
According to the terms of Accounting Standards 15(AS-15), the Gratuity liability (Actuarial) of every company is required to be accounted / disclosed from year to year.
Why should a company entrust Gratuity Funds to an Insurance Company instead of managing the fund by itself?
A Gratuity Scheme with an insurance company frees the employer from hassles of watching over the investment and adhering to an Investment pattern. In addition, an insurance company provides for payment of anticipated gratuity in case of the death of an employee.