The word gratuity is understood by two different meanings, one is the simple tip offered by people at restaurants or to taxi drivers etc. Gratuity is also the benefit paid by the employer to the employee for the service he has done. It is a form of a thanksgiving to the employee from the employer for his loyal services.
- Gratuity is the sum of money paid by an employer to an employee for services rendered in the company.
- This is paid only to the employees who complete a certain time period with the company.
- It can also be understood as a form of tip but this is given from an employer to an employee for giving services in the company.
- Different countries have different rules and gratuity limit that is doled out by the employer.
Process of Gratuity
- An employer may provide gratuity to his employee from his own pocket.
- He may also take a group gratuity plan with an insurance provider.
- For group gratuity plan, annual contributions are paid by the employer to the insurance provider.
- The employee himself too can contribute to his gratuity amount.
- The insurance company pays the gratuity on the basis of the clauses in the group insurance scheme.
Timeline of Gratuity Payment
Following are three steps involved in gratuity payment:
- Initiation: An individual or a person authorized must send an application to an employer regarding the gratuity he or she is owed by a company.
- Acknowledgment and calculation: On receiving the application the company that owes gratuity will calculate the amount and also provide notices to the individual and the controlling authority with the amount specified.
- Disbursal: The employer then pays the gratuity amount to the individual.
Formula for Gratuity
Gratuity can be calculated on the basis of the number of years the employee worked in the company and last drawn salary. It also depends on a number of other factors like whether you were terminated by the employer or you resigned the job on your own, the type of contract employed under etc. Further, different countries have different rules for calculating gratuity.
Further, it should be noted that different counties have different rules for gratuity calculations. India has a stipulation for a minimum continuous employment of 5 years whereas in the UAE it’s merely a year. The United States does not have any formal system of gratuity.
To calculate gratuity in the UAE more easily visit www.uaegratuitycalculator.com.
Gratuity and Pension are also often confused, but they are two completely separate categories. While Gratuity is paid to a person one time, the pension is a payment made to the person continuously in installments. Also, the two are different in their essence. Gratuity means a gratitude expressed by the employer and the pension is the retirement benefit paid to the employee.
Gratuity simply put is thus a unique incentive which is given to all the employees after they finish their employment either they leave their job or it is terminated.