Gratuity and bonus payments are essential components of employee compensation in India, offering financial security and rewarding employees for their contributions. This guide provides detailed insights into the legal frameworks, eligibility, and employer obligations for these
benefits.
Gratuity is a statutory benefit paid to employees as a token of appreciation for their service. Governed by the Payment of Gratuity Act, 1972, it applies to employees with a minimum of five years of continuous service in an organization.
Applicable to establishments with 10 or more employees.
Gratuity = (Last Drawn Salary × 15 × Number of Years of Service) / 26 For example, if the last drawn salary is INR 30,000 and the employee served for 10 years: Gratuity = (30,000 × 15 × 10) / 26 = INR 1,73,077.
Gratuity up to INR 20 lakhs is tax-free under Indian tax laws.
The bonus is an additional payment made to employees as an incentive or share of the company’s profits. It is governed by the Payment of Bonus Act, 1965.
Employees earning up to INR 21,000 per month.
8.33% of the salary or INR 100, whichever is higher.
20% of the salary.
Bonus is calculated for the financial year.
1. Financial security post-retirement.
2. Reward for loyalty and long-term service
1. Motivates employees to perform better.
2. Provides a share in the organization’s success.
Gratuity is payable upon resignation, retirement, or termination after five years of service. The five-year rule is waived in cases of death or disability.
Gratuity can only be withheld in cases of proven misconduct under the Payment of Gratuity Act.
Bonus is calculated as a percentage of the salary based on the company’s profit or loss for the financial year.
Tools to ensure error-free computation of gratuity and bonus payments.
Stay informed on amendments and changes in laws.
Expert guidance to meet statutory obligations effectively.
Assistance in preparing and maintaining records for smooth audit processes.
