Gratuity is a long-service benefit paid to eligible employees when their employment ends.
What is gratuity?
Gratuity is a retirement and long-service benefit paid by an employer to an eligible employee when their employment ends. It forms part of an employee's retirement and long-term benefits package and is intended to recognise service with an organisation.
A gratuity payment is commonly associated with retirement, resignation after a qualifying period of service, death or permanent disability. The amount payable is generally based on an employee's last drawn salary and length of service, subject to applicable gratuity rules.
For employers, gratuity is an important payroll and workforce planning consideration. Organisations may need to account for gratuity liabilities, maintain accurate service records and calculate gratuity correctly during the Full and Final Settlement (FnF) process.
Things to know
- Gratuity is a long-service benefit that may become payable when an employee leaves an organisation after meeting the applicable eligibility requirements.
- Eligibility for gratuity is generally linked to an employee's length of service, although different rules may apply in certain circumstances such as death or permanent disability.
- Gratuity payments are commonly associated with retirement, resignation, death or permanent disability.
- The amount payable is typically calculated using an employee's earnings and completed years of service.
- Employers need accurate payroll and employment records to calculate gratuity correctly and support final settlement processes.
- Many organisations account for future gratuity obligations as part of employee benefit and financial planning activities.
- Gratuity calculations depend on accurate service records and payroll information, making employee recordkeeping important throughout the employment lifecycle.
FAQs
When does gratuity typically become payable?
Gratuity is commonly paid when an employee retires, resigns after meeting the applicable eligibility requirements, or leaves employment due to death, permanent disability or other qualifying circumstances.
How is gratuity different from Employees’ Provident Fund (EPF)?
Gratuity is a long-service benefit paid by an employer when employment ends, while EPF is a retirement savings scheme that receives contributions throughout an employee's career.
Is gratuity included in CTC?
Some employers include gratuity as part of a Cost to Company (CTC) calculation, while others present it separately. The approach varies by organisation and compensation structure.
What information is used to calculate gratuity?
Employers typically use an employee's eligible salary components and length of service when calculating gratuity entitlements.
Does gratuity form part of Full and Final Settlement (FnF)?
Where an employee is eligible, gratuity is typically included as part of the Full and Final Settlement (FnF) process when employment ends. Employers may calculate and process gratuity along with other final payments and deductions.
