Gratuity
On wages as the codes define them.
All payroll & labour compliance services
Payroll & Labour Compliance
Gratuity, Bonus and Leave Encashment
FinAura computes your statutory employee benefits under the labour codes: gratuity for eligible employees including fixed-term staff, statutory bonus where it applies, and leave encashment under your policy. Each is provided for in the books every year, so the liability is known before it is paid.
- Chartered Accountant-led
- Bangalore and across India
- Reply within one business day
What is covered
What Gratuity, Bonus and Leave Encashment Covers
Three liabilities that grow quietly until someone leaves.
Fixed-term staff
Now eligible sooner.
Statutory bonus
Applicability and computation.
Leave encashment
Balances valued under policy.
Provisions
Booked in the accounts each year.
Valuation
Actuarial report coordinated where required.
How the month runs
How It Works
Check, compute, provide, pay.
Step 1
Check
- Applicability
- Eligibility
- Policies
Step 2
Compute
- Wages per the codes
- Service
- Balances
Step 3
Provide
- Year-end provision
- Actuarial where needed
- Disclosure
Step 4
Pay
- On exit or when due
- Tax worked out
- Records
Your part
What We Need From You
- 01Employee service records
- 02Salary data
- 03Leave policy and balances
- 04Any gratuity insurance policy
Our part
What You Get
- Liabilities computed correctly
- Provisions in the books
- Payments made when due
- Numbers ready for the auditor
A common question
How do the labour codes change gratuity?
Gratuity is now computed on wages as the Code on Wages defines them, so allowances above half of pay are added back, which can raise the amount. Fixed-term employees also qualify after a shorter period than permanent staff.
Bonus and leave rules are also now in the codes. A company that has not revisited its provisions since November 2025 may be under-providing.
See full and final settlementsProvisionIn the books
ComputationOn code wages
EligibilityService and type
Who it is for
Who It Is For
Employers with long-serving staff
Gratuity building up.
Companies with fixed-term staff
New eligibility.
Employers covered by bonus rules
Annual statutory bonus.
Companies facing audit
Provisions to support.
The rules, in plain English
What the Law Says
Code on Social Security, 2020
PF, ESI and gratuity
Provident fund, employees' state insurance, gratuity and maternity benefit now sit under one code. The EPF and ESI schemes continue, run by EPFO and ESIC.
Official source: labour.gov.inCode on Wages, 2019
Definition of wages
Wages mean basic pay, dearness allowance and retaining allowance. Excluded allowances such as HRA and conveyance above half of total pay are added back to wages, which affects PF, ESI, gratuity and bonus.
Official source: labour.gov.inAccounting Standards
AS 15 / Ind AS 19
Employee benefits such as gratuity and leave encashment are recognised as liabilities as employees earn them, not only when paid.
Official source: icai.orgThis is general information, not advice for your situation; we confirm what applies to you before any work starts.
Questions we get asked
Gratuity, Bonus and Leave Encashment: Questions, Answered
How is gratuity calculated?
From the last drawn wages and years of service under the formula in the Code on Social Security, using wages as the codes define them.
Do fixed-term employees get gratuity?
Yes. Under the codes, fixed-term employees qualify for gratuity after a shorter period of service than permanent staff, on a pro-rata basis.
Is statutory bonus compulsory?
For establishments and employees the Code on Wages covers, yes. We check applicability for your business.
Do we need an actuarial valuation?
Companies following Ind AS, and some others, value gratuity and leave actuarially. We coordinate with an actuary where required.
Often Taken Together
All 11 Payroll & Labour Compliance services01Payroll & Labour ComplianceFull and Final SettlementsExit dues, notice period recovery, leave encashment and gratuity computed and paid correctly when someone leaves.02Payroll & Labour ComplianceLabour Codes ComplianceSalary structures and policies reviewed against the labour codes, so wages, contributions and records are set up correctly.03Accounting & FinanceAccounting & BookkeepingClean, current books every month, reviewed by a Chartered Accountant.04Systems & ControlsPolicies & DocumentationFinance and HR policies, employee handbooks, SOPs and business documentation.