Understanding the do’s and don’ts of gratuity compliance is essential for both employers and employees under India’s new Labour Codes. With expanded eligibility especially for fixed-term employees and stricter enforcement timelines, gratuity is no longer just a retirement benefit but a critical component of workforce accountability. This guide outlines the key actions employers must take to avoid penalties and the steps employees should follow to secure their rightful dues. From accurate calculation and documentation to timely claims and dispute resolution, these practical insights help ensure smooth, lawful gratuity management in 2025 and beyond.
Employers: Do’s and Don’ts
Do’s
- Calculate accurately:
Ensures allowances do not dilute the wage defination.
- Disburse within 30 days: Payment must be made promptly; delays attract interest and potential penalties.
- Document everything: Maintain service records, appointment letters, and wage slips to avoid disputes.
- Include gratuity clauses: Clearly mention eligibility in contracts, especially for fixed-term employees.
- Budget for liability: Factor gratuity into financial planning, especially with expanded coverage.
- Train HR teams: Ensure staff understand the new wage definition and eligibility rules.
- Respect portability: Recognize service continuity when employees move between establishments under the same employer group.
Don’ts
- Don’t delay payments: Beyond 30 days, interest is mandatory and non-payment can lead to prosecution.
- Don’t misclassify employees: Avoid labelling eligible staff as “trainees” or “consultants” to escape liability.
- Don’t ignore fixed-term eligibility: One year of service now qualifies; overlooking this is a compliance breach.
- Don’t manipulate wage structures: Reducing basic pay below 50% of total remuneration to minimize gratuity is unlawful.
- Don’t neglect communication: Failing to inform employees of their rights can damage trust and reputation.
Employees: Do’s and Don’ts
Do’s
- Check eligibility: Permanent employees after 5 years; fixed-term employees after 1 year.
- File a claim formally: Submit a written application to the employer when gratuity becomes due.
- Preserve records: Keep appointment letters, salary slips, and service certificates for proof.
- Know tax benefits: Gratuity is tax-free up to ₹20 lakh under Section 10(10) of the Income Tax Act.
- Seek redressal: Approach the Controlling Authority if gratuity is denied or delayed.
- Understand calculation: Verify the formula and ensure Basic + DA is correctly considered.
- Nominate beneficiaries: Ensure nomination forms are updated to avoid disputes in case of death.
Don’ts
- Don’t assume gratuity is automatic: A formal claim may be required in some cases.
- Don’t ignore discrepancies: Challenge incorrect calculations or exclusions immediately.
- Don’t rely only on verbal assurances: Always insist on written proof of employment and service.
- Don’t delay disputes: Timely action ensures faster resolution and prevents forfeiture of rights.
- Don’t overlook fixed-term rights: Even short-term contracts can qualify under the new codes.
Why This Matters
- For employers, compliance ensures legal safety and builds goodwill.
- For employees, awareness prevents exploitation and secures rightful benefits.
- For both, gratuity under the Labour Codes is not just a financial transaction—it is a symbol of fairness and respect in employment relationships.
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Disclaimer – This blog post is a general guide. It should not be considered legal advice. Consult a legal professional for more details.