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Gratuity

Gratuity is a thank-you payment for long service — a lump sum you owe an employee who stays five years or more, paid when they leave.

Gratuity comes from the Payment of Gratuity Act. Once an employee completes five years with you, they're entitled to a payout based on their last salary and how long they served. It's entirely employer-funded — nothing is deducted from the employee. Webelio tracks service, provisions for it, and calculates the exit payout.

Does this apply to my business?​

  • Headcount: the Act applies to establishments with 10 or more employees.
  • Per employee: an employee qualifies after 5 years of continuous service.
  • Exceptions: the five-year rule is waived on death or disability — the payout is due regardless of service length.

What Webelio does automatically​

  • Tracks each employee's years of continuous service.
  • Flags people approaching the 5-year milestone.
  • Sets aside a monthly provision in CTC (about 4.81% of Basic) so the cost is planned for, not a surprise.
  • Calculates the actual gratuity payable when someone leaves after five years.
  • Adds it to the Full & Final settlement at exit.

What you still must do​

  • Pay the gratuity as part of the employee's final settlement when they leave after five years.
  • Keep the CTC provision in mind when budgeting — it's real money owed later.

The formula, in plain words​

Gratuity = (last drawn Basic + DA) × 15 ÷ 26 × years of service

The idea is 15 days' wages for every year worked. The 26 is the number of working days in a month used by the Act. Years of service are rounded to the nearest whole year — if the last part-year is more than six months, it counts as a full year.

Example: someone with 7 years' service and a last-drawn Basic of ₹40,000 (no DA):

₹40,000 × 15 ÷ 26 × 7 = ₹1,61,538

Webelio does this calculation for you at exit.

The ₹20 lakh limit and tax​

  • Gratuity is capped at ₹20,00,000 by law. Anything above that is the company's choice (ex-gratia).
  • For private-sector employees, gratuity up to ₹20,00,000 is tax-free.

Provisioning in CTC​

Because gratuity is a large future cost, companies set aside a little each month rather than face the whole amount at once. Webelio provisions roughly 4.81% of Basic per month and shows it as part of CTC. It is:

  • Not deducted from the employee's take-home pay.
  • An employer cost, tracked so the money is ready when the employee leaves.

When it's paid​

Gratuity is paid when the employee leaves after completing five years — on retirement, resignation or termination — and on death or disability at any time. It's settled as a line item in the Full & Final settlement.

What's next​