What is Gratuity?
There are several tools and services available in the present times to save money and put something away for retirement. However, there are only a few of these tools/services are provided by the employer and gratuity is one of the most popular ones in this regard. Gratuity is in many ways, your organization’s way of thanking you for the services that you have provided to them in the long term. The amount comes in handy during retirement and acts as a bonus for the employee.
In lot of cases, gratuity is included in the cost to company (CTC) that an individual receives from his/her employer. A small portion of the monthly salary is put into the gratuity bucket, which can only be paid out under certain key circumstances. The Payment of Gratuity Act, 1972 governs the rules and regulations that employers need to follow for receipt of the company’s gratuity benefit.
An individual is entitled to gratuity if they attain the age of retirement, retire or resign from their job after extended years of service or in case of death/disability occurring due to an accident or any disease. An employee can avail gratuity only if they have served for a minimum of five years in the company. However, in the case of death or disability due to accident, the five-year clause is not mandatory.
An individual working in any establishment or organization (example: factories, shops, educational institutions, mines, plantation, railway etc.) is entitled for gratuity if in the last twelve months, the company’s total employee strength exceeds 10 individuals. Once gratuity is applicable for an employer, even if the workforce strength reduces to less than 10 at a later date, the gratuity clause would still hold true.