Information

Gratuity is a lump sum that a company pays when an employee leaves an organization, and is one of the many retirement benefits offered by a company to an employee. As per the scheme for the payment of gratuity to employees, Gratuity is applicable to all organisations i.e. to every form of business, including proprietorship, partnership or a limited company if they have more than 10 employees. Once act is applicable it is applicable for always even though employee falls less than 10.

As per AS 15 Employee Benefits, Provision in balance sheet and Notes to accounts are required as per Actuarial Valuation method as prescribed. Hence it is mandatory to ensure that ALL your Companies (Public/ Private, Listed/ Unlisted) take Actuarial Valuation as per AS 15 & Ind AS 19. In companies where PF is applicable, Gratuity is automatically applicable, so Actuarial Valuation is required to be conducted in all Companies.

Gratuity Expense is recognized from the day employee joins the company because the gratuity benefits start accruing as soon as the employee starts his/her service. Gratuity provision needs to be made for each employee as on the balance sheet date, irrespective of whether the employee has completed 5 years or not.

Thus Actuarial Gratuity calculation is made every year by the actuaries and will be reflected in the balance sheet.

CoKaCo assist our clients in designing benefit plans for their employees, purpose of setting up benefit plan or scheme. Also we consult clients in redesigning their existing benefit plans for changing scenario of the market in general and company in particular.

When Company is liable to pay gratuity to employees ?

Gratuity is a defined benefit plan given by the employer to the employee for rendering services continuously for five years or more. It is a monetary benefit usually given at the time of retirement.

This gratuity is payable to the employee:

  • On his superannuation, or
  • On his retirement or
  • Resignation or
  • Death, or
  • Disablement

However, there is an exception where the condition of working continuously for five years with an organisation is not applicable.

If an employee's services are terminated due to his death or has become disabled due to an accident or a disease, an employer is mandated by law to pay gratuity to him or his nominee/legal heir, as the case maybe, irrespective of the number of years of continuous service. /p>

On what Gratuity Valuation is based ?

Gratuity Valuation include analysis of past data provided by the company by using statistical tools to give the company best estimates of assumptions which are further used in actuarial valuations of the company’s benefit liabilities. The assumptions are based on a mix of statistical studies and experienced judgment. The actuary must make assumptions regarding to the discount rate, employee contribution rates, wage growth rates, inflation rates, mortality rates, service retirement ages, disabled retirement ages and interest on member accounts etc. Since assumptions are often derived from long-term data, unusual short-term conditions or unanticipated trends can occasionally cause deviations from forecasts.

Requirement for Gratuity Valuation :-

  • Total number of employees
  • Total of basic salary for all employees
  • Total of Cost To Company (CTC) for all employees
  • Dates of Birth of all the employees
  • Dates of joining of all the employees
  • Number of leaves eligible to employees
  • Number of leaves outstanding for each completed year of service
  • Number of employees at beginning (Opening Data)
  • New employees joined during the year
  • Number of Employee exits / deaths during the year
Information

Gratuity is a lump sum that a company pays when an employee leaves an organization, and is one of the many retirement benefits offered by a company to an employee. As per the scheme for the payment of gratuity to employees, Gratuity is applicable to all organisations i.e. to every form of business, including proprietorship, partnership or a limited company if they have more than 10 employees. Once act is applicable it is applicable for always even though employee falls less than 10.

As per AS 15 Employee Benefits, Provision in balance sheet and Notes to accounts are required as per Actuarial Valuation method as prescribed. Hence it is mandatory to ensure that ALL your Companies (Public/ Private, Listed/ Unlisted) take Actuarial Valuation as per AS 15 & Ind AS 19. In companies where PF is applicable, Gratuity is automatically applicable, so Actuarial Valuation is required to be conducted in all Companies.

Gratuity Expense is recognized from the day employee joins the company because the gratuity benefits start accruing as soon as the employee starts his/her service. Gratuity provision needs to be made for each employee as on the balance sheet date, irrespective of whether the employee has completed 5 years or not.

Thus Actuarial Gratuity calculation is made every year by the actuaries and will be reflected in the balance sheet.

CoKaCo assist our clients in designing benefit plans for their employees, purpose of setting up benefit plan or scheme. Also we consult clients in redesigning their existing benefit plans for changing scenario of the market in general and company in particular.

When Company is liable to pay gratuity to employees ?

Gratuity is a defined benefit plan given by the employer to the employee for rendering services continuously for five years or more. It is a monetary benefit usually given at the time of retirement.

This gratuity is payable to the employee:

  • On his superannuation, or
  • On his retirement or
  • Resignation or
  • Death, or
  • Disablement

However, there is an exception where the condition of working continuously for five years with an organisation is not applicable.

If an employee's services are terminated due to his death or has become disabled due to an accident or a disease, an employer is mandated by law to pay gratuity to him or his nominee / legal heir, as the case maybe, irrespective of the number of years of continuous service.

On what Gratuity Valuation is based ?

Gratuity Valuation include analysis of past data provided by the company by using statistical tools to give the company best estimates of assumptions which are further used in actuarial valuations of the company’s benefit liabilities. The assumptions are based on a mix of statistical studies and experienced judgment. The actuary must make assumptions regarding to the discount rate, employee contribution rates, wage growth rates, inflation rates, mortality rates, service retirement ages, disabled retirement ages and interest on member accounts etc. Since assumptions are often derived from long-term data, unusual short-term conditions or unanticipated trends can occasionally cause deviations from forecasts.

  • Total number of employees
  • Total of basic salary for all employees
  • Total of Cost To Company (CTC) for all employees
  • Dates of Birth of all the employees
  • Dates of joining of all the employees
  • Number of leaves eligible to employees
  • Number of leaves outstanding for each completed year of service
  • Number of employees at beginning (Opening Data)
  • New employees joined during the year
  • Number of Employee exits / deaths during the year