Define your gratuity rules clearly with this ready-to-use policy template and forms. Stay aligned with the Payment of Gratuity Act, 1972 and reward long-serving employees fairly.
A gratuity policy outlines the financial benefit an organization provides to its employees as a token of appreciation for their long-term service. As per the Payment of Gratuity Act, 1972, gratuity becomes payable to an employee upon retirement, resignation, or other qualifying events after completing at least 5 years of continuous service.
The act came into effect on 16th September 1972.
It applies to all government entities and private organizations employing 10 or more employees on any single day in the preceding 12 months.
Once applicable, an organization must continue complying, even if the number of employees drops below 10.
An employee is eligible for gratuity under these conditions:
Minimum Service: At least 5 years of continuous employment.
Working Days: At least 240 days in a year (190 days for miners).
Interruptions Covered: Periods like strikes, layoffs, or accidents don’t break continuity.
Applicable Events:
Formula:Gratuity = (15 × Last drawn salary × Completed years of service) / 26
Salary includes only basic pay + dearness allowance.
If an employee has served more than 6 months in a year, it’s rounded to a full year.
Example:
If Mr. X worked for 19 years and 2 months and his last drawn salary (basic + DA) was ₹1,30,000:Gratuity = (15 × 1,30,000 × 19) / 26 = ₹14,25,000
Gratuity may be forfeited, wholly or partially, if the employee is terminated due to:
Fraudulent behavior or criminal offense
Violent or disorderly conduct
Willful negligence causing loss to the employer
Government Employees: Gratuity is fully tax-exempt.
Private Sector Employees: Exempt up to ₹20 lakhs under Section 10(10) of the Income Tax Act.
In Case of Death: Gratuity paid to the nominee/legal heir is completely tax-free.
To,
[Employer’s Name]
[Company Name]
[Location]
Subject: Application for Payment of Gratuity
Dear Sir/Madam,
I am writing to request the release of my gratuity payment under Section 4(1) of the Payment of Gratuity Act, 1972. I have completed [X] years of service and was separated from service on [Last Working Date] due to [Reason – resignation/retirement/disablement].
Please find the required details below:
1. Full Name: [Your Name]
2. Address: [Your Address]
3. Department: [Your Department]
4. Date of Joining: [DD/MM/YYYY]
5. Reason for Separation: [Resignation/Retirement/Disablement]
6. Total Service Duration: [Years Completed]
7. Last Drawn Wages: ₹[Amount]
8. Gratuity Amount Claimed: ₹[Amount]
9. Supporting Documents: [If applicable]
10. Preferred Mode of Payment: Cash/Cheque/Bank Transfer
Sincerely,
[Signature]
[Date]
NOTICE FOR PAYMENT OF GRATUITY
(Form L – As per Rule 8 of Payment of Gratuity Rules, 1972)
To,
[Employee/Legal Heir Name]
[Address]
You are hereby informed that a gratuity amount of ₹[Amount] is payable to you for your service at [Company Name] under the Payment of Gratuity Act, 1972.
Kindly collect the amount via [Cheque/Cash] on [Date] from [Location]. Alternatively, it will be sent to your address by registered post.
Gratuity Calculation Summary:
– Total Service: [X Years Y Months]
– Last Drawn Wages: ₹[Amount]
– Gratuity Payable: ₹[Amount]
Authorized Signatory:
[Officer’s Name & Signature]
[Date & Place]