OBLIGATION FOR AMOUNT PAYABLE TOWARDS GRATUITY TO AN EMPLOYEE
NOTE ON AMOUNT PAYABLE UNDER GRATUITY OBLIGATION TO AN EMPLOYEE
We highlight the need for provisioning the obligation under Gratuity benefits payable to employees. This obligation is to be shown in the Financial Statements of the enterprises. Whilst this obligation will depend upon several factors, it will also be dependent on the amount payable under the obligation. How the amounts payable under this obligation change, as service put in by employees increases, provides an interesting study. We thought this input may be of interest for you :
- Employers are under obligation to pay Gratuity to their employees on their exit from service in the following events:-
- on leaving Service before retirement
- on unfortunate Death whilst in service before retirement and
- on their Retirement from service
- How the amount payable to an employee towards gratuity changes year after year as his accrued service (completed service) increases provides an interesting study. For this study we will start with an example given in 3 herein below:-
- An Employee is aged 30 years today. He has accrued service (completed service) of 5 years. His retirement is assumed to be at age 60 when he will have an accrued service of 35 years. His salary today is Rs. 10,000/- per month. It is assumed that his salary increases at the rate of 10% p.a.
- Formula for Amount of Gratuity based on Payment of Gratuity Act (Amended up to date) is:
- (15/26) x Salary at the time of exit x No. of years of service at the time of exit
- Subject to a ceiling of Rs. 10,00,000/-
- Based on the data/information of the above example we have prepared a table of the amounts payable under Gratuity to the employee as his accrued service increases up to the attainment of his retirement age at 60 after having put in an accrued service of 35 years. This table is given below:
| Accrued Service in Years | Salary increasing at 10% p.a. | Amount payable
|
| 5 | 10000 | 28846 |
| 6 | 11000 | 38077 |
| 7 | 12100 | 48865 |
| 8 | 13310 | 61431 |
| 9 | 14641 | 76021 |
| 10 | 16105 | 92914 |
| 11 | 17716 | 112426 |
| 12 | 19487 | 134911 |
| 13 | 21436 | 160769 |
| 14 | 23579 | 190450 |
| 15 | 25937 | 224458 |
| 16 | 28531 | 263365 |
| 17 | 31384 | 307807 |
| 18 | 34523 | 358505 |
| 19 | 37975 | 416264 |
| 20 | 41772 | 481990 |
| 21 | 45950 | 556699 |
| 22 | 50545 | 641529 |
| 23 | 55599 | 737758 |
| 24 | 61159 | 846818 |
| 25 | 67275 | 970312 |
| 26 | 74002 | 1000000 |
| 27 | 81403 | 1000000 |
| 28 | 89543 | 1000000 |
| 29 | 98497 | 1000000 |
| 30 | 108347 | 1000000 |
| 31 | 119182 | 1000000 |
| 32 | 131100 | 1000000 |
| 33 | 144210 | 1000000 |
| 34 | 158631 | 1000000 |
| 35 | 174494 | 1000000 |
Figures in Col. 3 are based on the data/information/basis given in the example. Actual figures will vary from case to case.
Figures given in Col. 3 of the table are the amounts payable on exit from service for accrued service as given in Col. 1. These amounts are not the values of obligation.
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