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5 Facts Related To Gratuity Every HR Executive Must Know Today

Events over the past year have not just shifted where and how we work but also caused employers and employees alike to rethink the importance of employee benefits. As the physical and mental impacts of this global pandemic continue to reveal themselves, employees are increasingly looking for employee benefits that go beyond medical to cover “wellcare” – rather than just sick care. Also, employees now need benefits that can aid them financially even after resigning/retiring from the job. Considering all these forces and factors, HR professionals are getting questions and queries like never before. In such a scenario, HRs are expected to have a clear understanding of every employee benefit to help employees understand and choose them accordingly.

In this blog, we will tell you about gratuity, which is considered one of the most beneficial employee benefits in India. From the gratuity calculation formula to its eligibility criteria, we have discussed the top 5 facts about this benefit below. Take a look. 


Companies give a sum of money to their employees at the end of their service period. Simply put, this benefit is given to working individuals as a token of appreciation for their dedication and hard work. 


First things first, every organization with ten or more employees is supposed to provide the gratuity benefit. Most importantly, once the headcount of a company is ten, it will become obliged for gratuity, even if the number of employees decreases in the future. 

Talking about employees, a person who has offered continuous service of 5 years to a firm will be considered eligible for this benefit. Although gratuity is typically paid when an employee retires, there are some exceptions when this payment can be made before the retirement such as resignation or death.


Calculating gratuity is not as difficult as it seems. If you know and understand the right gratuity calculation formula, you can do it in just a few minutes.

To make this calculation process faster, there are even several gratuity calculators online

All that said, let’s move forward and have a look at the gratuity calculation formula: 


Here, Y stands for the total years of employment

L stands for last withdrawn salary 

Now that you know how to calculate this benefit, keep in mind that employers can even pay a higher amount under this prescribed formula. 


Every employee who is entitled to this benefit is supposed to select a nominee. Need to mention, one can choose more than one nominee that should be mentioned in Form F. Also, if an employee wishes to change his or her nominee, s/he can easily do it by giving a written notice to the employee.

If a person has not nominated anyone, the gratuity payment will be made to his or her legal heirs. And if their heirs are not adults at that time, then the payment will be deposited by the controlling authority in the bank that can be withdrawn when they attain the eligibility age. According to the gratuity laws, the family of a deceased employee means spouse, children, dependent parents and any adopted child.


Here are some of the basic rules to be taken into consideration at the time of payment:

Once a working individual becomes eligible for this employee benefit, s/he can apply within thirty days from the date it becomes payable. 
No employer can reject an employee’s application after the expiry of 30 days. 
The employer must make the payment within 30 days from the date of receipt of the application.
An employee can be paid in cash, DD, or by cheque
If the payment request is made by the nominee or legal heir, s/he will be required to provide an evidence/witness to prove the genuineness of the claim. 

There is more but we have only included the vital ones here.

We hope this blog helped you to learn more about gratuity.