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Home › Services › Document Guides › Gratuity & Bonus Computation

Neither of these is a gift, and they are not the same kind of money

Two payments get lumped together at the end of a job, and both get treated as something the company has kindly arranged. Neither is. Gratuity, where the Payment of Gratuity Act, 1972 applies, is an entitlement that arises out of service itself; an employer may pay more than the law requires, and cannot decide to pay less because of a policy, an unfinished handover or a bad parting. A statutory bonus under the Payment of Bonus Act, 1965 is an annual obligation of its own — and here sits the confusion that produces more arguments than anything else in this area, because it is not the bonus in your offer letter. The one in the offer letter is a contractual promise with contractual conditions. The one in the Act is a legal obligation with statutory conditions. They come from different places, and being paid one does not discharge the other. The second thing worth knowing before anybody opens a calculator: the formula is almost never the dispute. Arguments about gratuity are arguments about its inputs — which part of the salary counts as wages, which the Act defines in its own way and which is frequently not the line your payslip calls basic; how continuous service is counted; and what happens to the months left over at the end, which are routinely dropped by a computation that counts whole years only. Those three decide the figure. And the third: gratuity has its own clock. It does not belong inside a full-and-final settlement and it does not wait for an unrelated clearance, the duty to work out the amount does not depend on your asking for it, and where service ends in death or disablement the usual qualifying period does not apply at all — a point families are told the opposite of surprisingly often. This page sets out how both amounts are built, where the honest mistakes happen, the four questions that resolve most disagreements in a single email, and what to do when the money is simply not paid. It prints no ceiling, no threshold and no percentage, for a reason given plainly below.

From ₹2,999 3 – 10 days For employees and employers Nothing payable in advance
I have left my job and the gratuity figure looks low. How do I check it?Ask for the working rather than the total, and ask in writing. Four questions do almost all of the work: which wage figure was used, which salary components were included in it, how many years of service were counted, and how the leftover months at the end were treated. Most disagreements on this subject dissolve the moment those four answers are on paper, because most of them are not disputes about entitlement at all. They are differences in what went into the formula. Take them in order. The wage base comes first, and it is where most shortfalls hide. The Act has its own definition of wages, and that definition does not automatically mean the line your payslip has labelled basic. Whether a particular allowance belongs inside or outside depends on what the allowance actually is, not on what somebody in payroll decided to call it when the structure was designed. A computation that quietly assumes basic alone can produce a figure that is noticeably short, and in our experience it is usually an honest error rather than anything worse: a formula set up once, years ago, and never looked at again. Next, the service count. Continuous service is a defined idea, not a simple count of calendar years, and periods that feel like breaks are not always treated as breaks. If you are being told you fall short of the qualifying period, that is worth checking properly rather than accepting, particularly where your span is close to the line. And if service ended because of death or disablement, the qualifying period does not apply at all, which families are frequently told the opposite of. Then the part-year. A computation that counts only whole years and discards the remaining months is a common source of a figure that is short by a predictable amount. The Act deals with the leftover period, and a computation that ignores it is simply not following the formula. Now the bonus, because it is a different animal entirely and this is where most of the heat comes from. A statutory bonus under the Payment of Bonus Act is an annual legal obligation towards employees who satisfy the conditions in that Act, and it exists independently of whatever your offer letter promised. The bonus in the offer letter is a contractual payment with its own conditions, and it can be discretionary if it says so. Being paid the contractual one does not discharge the statutory one, and an employer answering a statutory bonus question by pointing at a performance payment is answering a different question. Two more things that matter and are easy to miss. Gratuity is not part of the full-and-final settlement, even where it is paid on the same day; it is its own obligation on its own timetable, which is why it should not be left waiting for an unrelated clearance to come through. And the duty to determine the amount does not depend on your asking for it, although putting a written application in anyway is sensible because it fixes a date and creates a record you may be glad of later. If the figure is still short after the working arrives, say so in writing, specifically, naming which of the four inputs you say is wrong and why. If nothing is paid at all, there is a defined authority under the Act for precisely that situation and delay can attract interest, so the position is better than people assume - but a claim supported by a dated application and a clear computation stands in a very different place from one built on memory.

Neither of these is a gift

The language around both payments makes them sound discretionary. People say the company gives gratuity, that a bonus was announced, that somebody was granted an amount on exit. That vocabulary is how an entitlement quietly becomes a favour in everybody’s head, including the employer’s.

Where the statutes apply, neither is a favour. Gratuity arises because service happened. A statutory bonus arises because an accounting year closed and the conditions in the Act were met. An employer is perfectly free to be more generous than the law requires — many are — but generosity above the floor is a different thing from the floor itself.

This matters practically rather than philosophically. An employee who believes the payment is a favour does not ask for the working, does not query a short figure, and accepts a reason that would not survive being put in writing. An employer who believes the same thing computes it casually and finds out later that casual was expensive.

Two payments, two different sources

Before anything else, separate them. They are grouped together on this page because they turn up in the same conversation, not because they are related.

GratuityStatutory bonus
Comes fromPayment of Gratuity Act, 1972Payment of Bonus Act, 1965
Triggered byThe end of serviceThe close of an accounting year
Built onLast drawn wages and length of serviceWages earned in the year, within a band
PaidOnce, on exitAnnually, while employed
Confused withA retirement gift, or a line in the settlementThe bonus written in an offer letter

Everything that follows treats them separately, because the inputs, the disputes and the remedies are different in each case.

Why this page prints no figures

You will not find a ceiling amount, a wage threshold or a percentage anywhere on this page, and that is deliberate rather than evasive.

Every one of those numbers has been revised, more than once, and each revision instantly makes a page that printed the old figure worse than useless — because a confident wrong number is read and relied on, while an absent one sends you to check.

What does not change is the structure: what the formula is made of, what the Act means by wages, how service is counted, that there is a ceiling, that there is a minimum and a maximum percentage, that there is an eligibility limit. The structure is what lets you check a computation. The figures are a lookup, and we will give you the current ones on a call for nothing.

Apply the same test to anything else you read on this subject. A page that cheerfully prints amounts without telling you when it was last looked at is a page to be careful with.

What gratuity actually is

In plain words, it is a payment for length of service, made when the service ends. It is not deferred salary in the strict sense, it is not a provident fund, and it does not accumulate in an account with your name on it that you can watch.

It becomes payable when employment ends — on superannuation, on retirement, on resignation, and on death or disablement. For the first three there is a qualifying period of continuous service; for the last, there is not. That single distinction is dealt with in its own section below because of how often families are told the opposite.

Some employers fund it through an arrangement with an insurer, some provide for it in their accounts, and some do neither until somebody leaves. From the employee’s side none of that changes the entitlement; it only changes how smoothly the money appears.

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The formula, and why it is not the argument

The computation takes three things: your last drawn wages, a fixed fraction representing fifteen days of wages for each completed year, and your years of continuous service, with the leftover part of a year dealt with rather than discarded.

Written out, it is one line of arithmetic that any payroll system can do correctly. And yet short figures are routine. The reason is that a formula is only as good as what is fed into it, and all three inputs are capable of being got wrong in good faith.

So when a figure looks low, do not argue about the formula. Ask which wage figure was used, which components went into it, how many years were counted, and how the part-year was treated. Those four answers contain the entire disagreement, and they fit in one email.

The next three sections take each input in turn, in the order in which they go wrong.

The wage base — where the shortfall hides

This is the first and biggest source of a figure that comes out short, and it is almost always an honest error.

The Act carries its own definition of wages. Whether a particular element of your salary falls inside it depends on the character of that element — what it is actually paid for, and whether it is paid as part of the terms of employment — and not on the heading it was given when the salary structure was built. Payroll structures are designed for other reasons entirely, and a label chosen for one purpose is not evidence of anything for this one.

What this means at a practical level is straightforward. A computation that takes the line marked basic, multiplies, and stops, may be right — or may have left something out. It is worth checking rather than assuming either way, particularly where the salary structure contains several allowances or has been restructured during your employment.

Which figure was taken as last drawn? The final month, or an average, or the figure before a recent change.

Which components were included? Ask for the list, not the conclusion.

Was there a restructuring during employment? These are a common moment for a wage base to be set once and never revisited.

Was there a period on reduced pay? Leave without pay, a sabbatical, a pay cut — each raises a question about what last drawn means.

Continuous service, counted properly

The second input is service, and the Act counts it in its own way rather than by reading a calendar.

Continuous service is a defined idea. Periods that feel like interruptions are not all treated as interruptions, and an employee who assumes a break broke the chain sometimes finds it did not. Equally, somebody who assumes everything counted sometimes finds it did not. The point is that this is a question with an answer in the statute, not a matter of impression.

Situations worth having checked rather than assumed: a transfer between group entities, a gap between a contract and confirmation, a period on extended leave, a stint that was described at the time as a consultancy, a break followed by a re-joining, and employment that moved with a business when it changed hands. Each of those is a real question and each has been the difference between a payment and a refusal.

The part-year that gets dropped

The third input is the smallest and the most reliably mishandled. Almost nobody leaves on an exact anniversary, so almost every computation has leftover months at the end.

The Act deals with those months. A computation that counts whole years only and silently discards the remainder is not applying the formula; it is applying a simplified version of it, usually built into a spreadsheet years ago by somebody who has left.

This one is easy to spot: take the years counted in the working and compare them with the span between your joining date and your last working day. If the working shows a round number and your service does not, ask the question. It is the quickest win on this page.

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The qualifying period, and the exception

For resignation, retirement and superannuation there is a qualifying period of continuous service before the entitlement arises. People know this as a number of years, and it is the one fact about gratuity that almost everybody has heard.

What fewer people know is that whether you cross it is decided by how continuous service is counted, which is the previous section’s subject. If you are close to the line, that is a reason to have the count checked rather than a reason to stop asking.

And the exception that matters most: where service ends because of death or disablement, the qualifying period does not apply. Families are told otherwise with some regularity, usually by somebody repeating the general rule in good faith. If that has been said to you, ask for it in writing.

The ceiling, and what sits above it

There is a statutory ceiling on the amount payable under the Act, it has been revised upward more than once, and this page prints no figure for it.

What is worth understanding is the relationship between the ceiling and anything above it. The ceiling caps the statutory entitlement. It does not prevent an employer from paying more, and some do — under a scheme, a policy, a contract of employment or a settlement. Where that happens, the extra amount is owed because of that arrangement rather than because of the Act, which matters if you ever have to enforce it, because the route is different.

So if you are being paid above the statutory figure, find out what the excess is being paid under. And if you have been promised something above it in a contract, keep that document, because it is the only thing that establishes the promise.

Gratuity has its own clock

It is frequently paid alongside a full-and-final settlement, which leads almost everybody to treat it as one more line in that statement. It is not.

It is a separate obligation with its own timetable, and the practical consequence is this: it should not be held hostage to something unrelated. A pending asset return, an unfinished handover, a disagreement about a notice-period adjustment or a no-dues clearance that is moving slowly are all settlement matters. They are not reasons for this particular payment to wait.

Everything about the settlement itself — how the statement is built, what can and cannot be deducted, the release you are asked to sign at the end, and how to disagree with a figure in the right order — belongs to our full-and-final guide, and our settlement documentation service handles that side. This page stays on the two statutory amounts.

Whose obligation it is

The duty to work out the amount and to pay it belongs to the employer, and it does not switch on when an employee asks. That is worth stating plainly, because a great many people wait politely for months believing they are supposed to be invited.

At the same time, making a written application is sensible even where nothing requires it. It fixes a date, it creates a reference, and it converts a conversation into a record. Our application drafting service prepares one, and the general craft of writing to an organisation so that it is acted on is set out in our guide to writing to an office.

Keep whatever acknowledgement you get, with its date. In a matter that may run for months, the date you first asked is frequently the most useful fact in the file.

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The nomination nobody files

While you are in service there is one piece of paper worth attending to, and hardly anybody does: the nomination recording who should receive the amount if you die in service.

It takes minutes. It is filed with the employer. And it is the difference, for the people left behind, between a payment and a process — at exactly the moment when a family has the least capacity to deal with a process.

Three things to do, today if you have never done them: file a nomination if there is none; update it if your circumstances have changed since you filed it, which for most people means after a marriage or a birth; and keep your own copy with the acknowledgement, because the employer’s copy is in a file you cannot reach.

A missing nomination does not destroy anybody’s entitlement. It simply means the question of who receives it has to be established some other way, which takes time and documents. Our legal heir certificate guide describes that route, and it is a good deal more work than filling a form would have been.

When service ends in death

This section is written for families rather than for employees, and it is written briefly and plainly, because people reading it have other things to carry.

The qualifying period does not apply. If you have been told the employee had not completed enough service, ask for that in writing.

The nomination decides who receives it, if one was filed. Ask the employer, in writing, whether there is one on record and what it says.

Where there is none, entitlement is established by other documents — which is slower, and which is what our legal heir guide is about.

It is separate from everything else — provident fund, insurance, any group cover, and any ex-gratia the employer decides to pay. Four different things, four different processes, and they should be pursued side by side rather than one after another.

Ask for a single written statement of everything the organisation says is due and under what head. It is a reasonable request, most employers prepare it willingly, and it saves a family from discovering a fifth entitlement two years later.

Forfeiture, and how narrow it really is

Employers do sometimes assert that gratuity has been forfeited, and the grounds on which the Act permits that are considerably narrower than the grounds on which it is asserted.

What is not a ground, however annoying the circumstances: leaving without serving the full notice period, an incomplete handover, joining a competitor, a poor appraisal, an unreturned laptop, an unresolved expense claim, or a parting that was simply acrimonious. Those are settlement questions and some of them are recoverable in other ways, but they are not this.

If forfeiture is being asserted, ask one question in writing: on what ground, and under which provision? That single sentence resolves most of these, because a ground that cannot be named in writing is usually not a ground at all.

Where a genuine ground is named, that is a serious matter and the point at which to take advice rather than to argue by email.

Where a reasoned refusal has to be answered properly, our reply drafting service prepares that response.

When it is simply not paid

This is better news than most people expect, because the Act does not leave you with only a general civil remedy. There is a defined authority for exactly this situation, and that specificity is an advantage.

It is an advantage worth preparing for. A claim that arrives with a dated written application, an acknowledgement, a clear computation showing the four inputs, and the employer’s own reply (or the absence of one) is in a completely different position from a claim built on remembered conversations. That file costs almost nothing to build at the time and is very expensive to reconstruct afterwards.

So the sequence that works is: apply in writing, keep the acknowledgement, ask for the working, record what you are told, and give a reasonable period. Then, if nothing moves, you have a file rather than a grievance. Our legal notice service prepares the step before proceedings where one is appropriate, and it quite often produces payment on its own.

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Delay, and what it costs the employer

Delayed payment of gratuity can attract interest under the Act. Employers are frequently unaware of this, and employees almost always are.

Mentioning it is not a threat and should not be written as one. It is simply a fact that changes the economics of delay: an amount that is going to be paid eventually is cheaper paid now, and a payroll team that understands this tends to find the file faster.

For employers reading this, that is the whole point of the sections further down. The cost of getting this right before an exit is a fraction of the cost of getting it wrong and then paying anyway, with interest, after a process.

The statutory bonus

Now the second payment, which is a different thing in every respect.

A statutory bonus under the Payment of Bonus Act, 1965 is an annual obligation. It is linked to wages earned in an accounting year, it is owed to employees who satisfy the conditions in the Act, and it is expressed as a percentage within a band — a minimum that does not depend on the employer having made a profit, and a maximum beyond which the Act does not require more.

It is not a reward for performance, it is not a festival payment, and it is not something an employer decides to declare. Those descriptions all belong to the other kind of bonus, which is the subject of the next section and the source of most of the confusion in this area.

The two bonuses, side by side

Statutory bonusPerformance / contractual bonus
Where it comes fromThe Payment of Bonus Act, 1965Your offer letter, contract or a scheme
Who decides the amountThe Act, within a bandThe employer, on the contract’s terms
Can it be discretionary?No, where the Act applies to youYes, if the document says so
Depends on performance?NoUsually, that is the point of it
Depends on profit?Not for the minimumWhatever the document says
Paid when?Within a period after the accounting year closesWhenever the document says

The consequence people miss: being paid one does not discharge the other. An employer answering a statutory bonus question by pointing at a performance payment has answered a different question — unless the payment was expressly made towards the statutory obligation, which is a specific thing and should appear in writing if it is being relied on.

Who the statutory bonus is for

Eligibility turns on two conditions in the Act, and this page gives their shape rather than their current numbers.

The first is a wage limit: the Act is aimed at employees drawing up to a certain level, and that level has been revised over the years. The second is a days-worked condition: an employee has to have worked for a minimum number of days in the accounting year to qualify, which is what brings joiners, leavers and people who were on long leave into the discussion.

There is also a separate concept worth knowing about, which is that where wages exceed a particular figure the bonus may be calculated on that figure rather than on the actual wage. That is a calculation ceiling rather than an eligibility rule, and the two get mixed up constantly.

All three figures change. Ask for the current position rather than relying on a number from anywhere, including a payroll system that was configured some years ago.

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A loss-making year

This is the point at which small employers are most often surprised, and it is worth stating gently because the surprise is usually genuine.

The Act provides for a minimum bonus that does not depend on the employer having made a profit in the year. Above that minimum, and up to the maximum, the amount is linked to the allocable surplus — so profitability affects how much above the floor is payable, not whether the floor exists.

There are provisions dealing with set-on and set-off across years, which is how surpluses and shortfalls are carried, and they are a genuine piece of accounting rather than a formality. If your organisation is in that position, it is worth having the computation done rather than estimated.

When a statutory bonus falls due

It is payable within a period measured from the close of the accounting year, which is why these disputes surface at roughly the same time every year and why “we will look at it after the audit” is not an indefinite answer.

Two practical consequences. For employers: the obligation is dated, so it belongs on a compliance calendar beside the filings rather than in a conversation about festival season. For employees: if a year has gone by with nothing said, the question is not impolite, and asking it in writing is better than asking it in a corridor.

Where several employees are affected by the same question, one clear written query is usually more effective than many, because it gets answered once rather than deflected repeatedly.

Where bonus disagreements come from

The two bonuses being treated as one. By far the commonest. A performance payment is made and the statutory question is considered answered.

An outdated payroll configuration. Thresholds were set when the system was installed and never revised after an amendment.

Days-worked miscounted. Particularly for joiners, leavers and employees who had a long period of leave during the year.

The calculation ceiling confused with the eligibility limit. Two different numbers doing two different jobs.

“We made a loss.” Stated as though it ended the question, which for the minimum it does not.

Silence. Nothing is said at all, for years, and everybody assumes the organisation is not covered without anybody having checked.

Notice that five of those six are mistakes rather than refusals. That is genuinely how most of these arise, and it is why the first letter should ask a question rather than make an accusation — a question gets a computation back, an accusation gets a defence.

A new establishment

The Act contains provisions for newly set-up establishments, under which the obligation works differently in the early years before the business has begun to make a profit.

Two cautions. Those provisions are specific and they are not a general exemption, so “we are a startup” is not by itself an answer to a bonus question. And they do not last indefinitely, which means an organisation that relied on them once should check whether it still can.

If your organisation is in or near that period, this is worth getting looked at properly, because the point at which the position changes is also the point at which an unexamined payroll practice becomes an arrears problem.

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Agency and contract staff

Where somebody works at one organisation’s premises but is on another’s payroll, the question of who owes what is a real one and it has a real answer — but the answer is not always the entity whose badge was worn.

It is determined by who the employer is for the purpose of each statute, and that can differ between the two Acts discussed on this page and between both of them and the provident fund position. It is one of the genuinely difficult areas in employment documentation, and it is far better settled at the beginning of a claim than discovered in the middle.

What helps, enormously, is documents: the contract under which you were engaged, the payslips and who issued them, the identity card, the attendance record, and anything showing who directed the work. Keep them. For employers running contract arrangements, the same documents are what establish the position in the other direction.

Consultants, retainers and labels

A great many people in India are engaged on a monthly retainer, described as consultants, and treated in every practical respect as employees.

Whether the relationship was employment is decided on what actually happened rather than on what the paperwork called it — how the work was directed, whether there were fixed hours and leave, whether the person could work elsewhere, who supplied the tools, and how integrated the role was into the organisation. No single factor decides it.

This is not a question to settle by reading a page on the internet, and we are not going to pretend otherwise. What this page can usefully say is: if a significant amount turns on it, take advice before you assume either answer, and gather the documents that show how the relationship actually ran, because those are what the question will be decided on.

Joining and leaving mid-year

Nobody’s employment conveniently matches an accounting year, and the edges are where computations go wrong in both directions.

For the statutory bonus, a part year raises the days-worked question directly, and an employee who joined late or left early is exactly the case a payroll system handles badly. For gratuity, the part-year question is the one dealt with earlier on this page, and it is the single easiest thing to check.

If you joined or left mid-year, look specifically at that year in any working you are given. It will not always be wrong — but if something is wrong, this is disproportionately often where it is.

The four questions

If you take nothing else from this page, take these. They are short, they are not confrontational, and they settle the large majority of disagreements without anybody needing to be upset.

1. Which wage figure was used, and as at which date?

2. Which salary components were included in that figure?

3. How many years of service were counted, and from which date to which date?

4. How was the part-year at the end treated?

And for the bonus: under which head was the payment made — the statutory obligation, or a contractual scheme?

Send them as questions, not as allegations. In our experience the answer is either a corrected figure or a clear explanation, and both of those are good outcomes compared with where these conversations otherwise go.

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Putting it in writing

Everything above works considerably better on paper than in a phone call, for the ordinary reason that a written question has to be answered in writing and a spoken one can be answered with reassurance.

Keep it short. Your identifiers, your dates of employment, what you have been given, the four questions, and a request for the working. One page is plenty, and a page that fits on a screen gets read on the day it arrives. If you want the longer version of how such a letter is built so that somebody acts on it, our guide to writing to an office has it.

Send it to somebody who can actually act on it, which usually means payroll or human resources rather than a former manager, and keep a copy with the date you sent it.

What not to put in that letter

Do not describe the exit. How you were treated, who said what, why you left — all of it may be true and none of it affects the arithmetic. It invites a reply about the exit instead of a reply about the computation.

Do not threaten in the first letter. A first letter that mentions proceedings converts a payroll query into a legal matter, which slows it down and puts it in front of people whose job is to defend rather than to calculate.

Do not quote a figure you worked out from a website. Ask for theirs. Leading with your own number invites an argument about your number instead of an explanation of theirs.

Do not mix it with other grievances. A letter containing a gratuity question, a relieving-letter complaint and an unpaid-expenses claim gets routed to one desk and answered on one point.

Accepting a payment you disagree with

A common situation: the amount offered is short, you need the money, and accepting it feels like agreeing with it.

It need not be. The way this is handled is to make the position clear in writing at the time of accepting — that the amount is received, that it is not accepted as a full discharge of the entitlement, and that the balance remains in question. Saying so afterwards is weaker than saying so at the moment of receipt.

Read whatever you are asked to sign before you sign it, because a document headed as a receipt is sometimes drafted as a release. The difference between those two, and how to deal with it, is set out properly in our full-and-final guide and we are not going to repeat it here — but do read it before signing anything at an exit.

For employers: getting it right before the exit

Half the people who come to us on this subject are employers, and almost all of them are organisations that wanted to do it correctly and found the rules less obvious than expected.

The honest position is that these two computations are cheap to get right in advance and expensive to get wrong and defend. The three things worth doing, in order of how much trouble they save:

Check the wage base your system is using. Most payroll configurations were set up once and inherited. A definition set years ago and never revisited is the commonest reason a well-intentioned employer underpays.

Check the service-count logic. Specifically how it treats part-years, transfers between entities, leave without pay, and employment that moved with a business.

Check the bonus thresholds against the current position. These have been amended, and a system configured before an amendment quietly produces the old answer for years.

None of that requires a dispute to have arisen. It requires an afternoon, and it is the cheapest thing on this page.

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For employers: the file that ends the argument

When a question does come, what resolves it quickly is not a position; it is a file.

Issue the working along with the payment, as a matter of routine, rather than only the total. A statement showing the wage figure used, the components in it, the service period counted and the treatment of the part-year answers the four questions before they are asked, and costs nothing beyond a template.

Keep, for each exit: the appointment letter and every revision, the final payslips, the computation with its working, the nomination on record, the dated communication to the employee, and the proof of payment. Our appointment letter and offer letter services prepare the documents at the start of employment that this file depends on at the end of it, and our full-and-final guide sets out the whole exit pack.

An employer who can produce that file is almost never in a dispute. An employer who cannot is in one regardless of whether the figure was right.

Six computations we are asked to re-check

These are the patterns, described neutrally, because in almost every case nobody was trying to short anybody.

Basic only. The wage base was taken as the line labelled basic without the definition ever being looked at.

Whole years only. The leftover months at the end were discarded.

The wrong last drawn. An average was used where the final figure applied, or a figure from before a recent revision.

A break that was not a break. Service treated as interrupted by a period that the Act does not treat that way.

One bonus standing in for the other. A performance payment treated as answering the statutory obligation.

Thresholds frozen in the system. A payroll configuration that still carries figures from before an amendment.

All six are visible the moment somebody asks for the working, which is why that request is the single most useful sentence in this entire subject.

The tax question, honestly

Both payments have a tax position, there are exemptions, those exemptions have limits, and the limits depend on your category of employment as well as on amounts.

This page gives you no figures and no thresholds for that, deliberately, and it would be doing you a disservice if it did — because this is the area where a stale number costs the most and where the answer is genuinely personal rather than general.

What is safe to say: establish the gross entitlement first and the tax position second, in that order. People who work backwards from a net figure they were expecting end up disputing the wrong number. And get the tax position on your own facts rather than on a general rule, particularly if the amount is substantial or if you had more than one employer in the year.

Very small organisations

A good deal of employment in India happens in organisations that have no payroll system, no human resources function and no formal appointment letter, and both of these subjects arrive there eventually.

Whether a particular statute applies at all depends on the kind of establishment and on how many people are employed, and the answer is not the same for both Acts. So for a small employer the first question is not how to compute; it is whether the obligation has arisen, and that is worth establishing once rather than assuming either way for years.

For an employee in such an organisation, the practical difficulty is usually evidence rather than entitlement: no appointment letter, wages paid in cash, no payslips. Attendance records, bank credits, messages about leave and salary, identity cards, and anything issued on a letterhead all help. Start collecting them while you are still there, because they are far harder to obtain afterwards.

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An old unpaid amount

People frequently discover years later that something was never paid, and the first question is always whether it is too late.

There are time limits associated with the routes available, and whether a particular delay can be explained is a real question with a real answer rather than an automatic no. What is certain is that an old claim is harder than a fresh one — documents have gone, people have moved, and the organisation may have changed hands.

So if you are in that position, two things. Establish what you still have before you decide anything, because the file decides what is possible. And do not let another year pass while you think about it, since every month makes the same claim harder than it was.

The documents to keep, from the day you join

This is a five-minute habit that makes everything on this page easy, and almost nobody has it.

Your appointment letter, and every revision letter after it. These establish the terms and the salary history.

One payslip from each year, at minimum, and all of them from the final year.

Your joining date, in something official — the appointment letter, a confirmation, an identity card with a date.

The nomination acknowledgement, once you have filed it.

Anything about a structure change, a transfer between entities, or a change in the employing company’s name.

At the exit: the resignation and its acknowledgement, the relieving letter, the settlement statement, and the computation with its working.

Scan the set, keep it somewhere that survives a change of phone or employer, and keep the originals flat. Our certified true copy service prepares the kind of copy an institution accepts where you need to hand one over and keep your own.

The disagreements that actually arise

Across the files that reach us, the recurring shapes are these — and what is striking is how few of them are about whether the entitlement exists.

A short figure with no working attached. The employee cannot see what is wrong because nothing has been shown.

“It will come with the full-and-final.” And the settlement is waiting on something unrelated, so the gratuity waits too.

A forfeiture asserted without a ground being named. Resolves in one letter more often than not.

A performance payment offered as the answer to a statutory bonus question.

A family told a qualifying period applied where service ended in death.

An employer that computed it carefully and still got the wage base wrong, and is relieved rather than defensive when it is pointed out.

Nothing at all. No payment, no letter, no reply — and an employee who waited a year before asking because they thought they were supposed to be invited.

What to bring us

Send photographs on the first call rather than waiting to assemble a tidy set; we will tell you what is actually missing.

Your appointment letter and any revision letters.

Payslips — the last few at minimum, and more if the salary structure changed during employment.

Your joining date and last working day, with whatever establishes them.

Any computation or settlement statement you have been given, even if it is only a total with no working.

Any correspondence about it, including the messages you think are unhelpful.

The circumstances of the exit in one line — resignation, retirement, termination, death or disablement. This changes the analysis more than anything else you can tell us.

For employers: the same set plus your current payroll logic for the wage base and the service count, which is usually where the answer is.

Place Order — Free · pay after work

What we do with it

We establish the two inputs that decide everything — the correct wage base and the correct service count — from your documents rather than from anybody’s assumption, including yours.

Then we do both computations and show the working line by line, so that you are holding an arithmetic you can hand to somebody else rather than a conclusion you have to trust. Where a figure you have been given turns out to be right, we say so plainly; that happens often and it is a useful answer, because it ends the matter instead of extending it.

Where it is not right, we draft what the situation needs: the written request for the working, the reply to a refusal, the application, or the notice before proceedings. For employers it is the other direction — the computation, the working statement to issue with the payment, and a look at the payroll logic so the next twenty exits do not raise the same question.

And you get the file at the end, in one place: the documents relied on, the computation with its working, the correspondence and the dates. That set is what makes any later step straightforward, and it is the part people are most glad of a year afterwards.

When paper stops being the remedy

Most of this is documentation and arithmetic, which is our work. Some of it is not, and we would rather say so early than draft a fourth letter into a silence.

Where an employer has refused with a stated ground that has to be contested, where the question of who the employer was has to be decided, where a relationship described as consultancy has to be established as employment, or where a claim has to be pursued before an authority and argued — those are matters for an advocate, and advice at the start of them is worth considerably more than advice after two more months of correspondence.

If it comes to that, the directory on this site is free to use and free to send a request through. One request goes out to everybody listed under that practice area at the same moment, whoever has capacity responds, and your number stays private until somebody has taken the matter on.

Court work is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.

What we will not do

We will not prepare a computation we know to be wrong, in either direction — not an inflated one for an employee, and not a deflated one for an employer.

We will not draft a document stating that an amount was paid, received or settled on a date when it was not, or that an employment began or ended on a date it did not.

We will not help an employer construct a ground for withholding an entitlement, or word a release so that an employee signs away something they have not been told about.

We will not help anybody re-characterise an employment relationship after the fact in order to change what is owed, in either direction.

We will not alter, retype or reconstruct a payslip, an appointment letter, a settlement statement or any issued document.

We will not promise an outcome from an authority or an employer. We will tell you what the computation shows and what we think the position is, and where we think a claim is weak we will say that instead of taking a fee for a letter.

What this costs

This work begins at ₹2,999 and the part of it that is ours takes 3 – 10 days. The complete amount is stated before anything begins, and no money is paid up front. A single computation with a working statement is quoted below that figure; a file that runs through an application, a reply and a notice is quoted once rather than step by step.

Anything an authority charges is its own charge and reaches you as its own figure, never absorbed into ours. For employers, a review of the payroll logic alongside a computation is quoted as one piece of work, because doing them separately helps nobody.

What makes one of these expensive is rarely the arithmetic. It is a wage structure that has to be reconstructed because payslips were never kept, an employment whose dates nobody can establish, or a year of polite waiting before anything was put in writing — and each of those is far cheaper dealt with on the first call than in the fourth month.

And the part that costs nothing, which is where most of the value on this page sits: treat both amounts as entitlements rather than gestures, ask for the working instead of arguing about the total, check the wage base and the part-year before anything else, keep the question separate from how the job ended, file a nomination this month if you never have, put the first request in writing even where nobody requires it — and if you are the employer, issue the working with the payment and you will almost never have this conversation at all.

Questions

Gratuity and bonus — what people actually ask

Is gratuity something my company decides to give me?
No. Where the Payment of Gratuity Act, 1972 applies, it is a statutory entitlement that arises from your service — not a gesture, not a retention tool, and not something an employer grants or withholds as it sees fit. An employer can pay more than the Act requires. It cannot decide to pay less because of a policy, a bad exit or an unfinished handover.
Is a bonus the same thing as the bonus in my offer letter?
Almost certainly not, and this one confusion causes more arguments than anything else on this subject. A statutory bonus under the Payment of Bonus Act, 1965 is an annual legal obligation towards employees who meet the conditions in that Act. A performance or retention bonus in your offer letter is a contractual promise with its own conditions. They come from different places, they are paid for different reasons, and being paid one does not discharge the other.
How is gratuity worked out?
By a formula built on three inputs: your last drawn wages, a fixed fraction representing fifteen days of wages for each year, and your completed years of continuous service — with part of a year beyond a certain point counted as a full year. The formula itself is rarely the dispute. The inputs are, and that is what most of this page is about.
Which part of my salary counts as wages for gratuity?
Not necessarily the figure your payslip calls basic, and this is the commonest honest error employers make. The Act carries its own definition of wages, and whether a particular allowance sits inside or outside it depends on what that allowance actually is rather than on what it has been named. A computation that silently assumes basic alone is the single most frequent reason the figure comes out short.
I worked four years and some months. Do I get nothing?
Possibly not nothing, and this deserves a careful answer rather than a quick one. There is a qualifying period of continuous service for resignation and retirement, and whether your particular span crosses it depends on how continuous service is counted under the Act rather than on a simple count of calendar years. It is worth getting the count checked before accepting that you fall short.
Does the qualifying period apply if someone dies in service?
No. Where service ends because of death or disablement, the qualifying period does not apply. Families are frequently told otherwise and accept it, which is one of the reasons we ask about the circumstances of the exit before anything else.
Is there a limit on gratuity?
There is a statutory ceiling, and it has been revised more than once. This page deliberately prints no figure for it, because a number written here would be the most dangerous sentence on the page the day it changes. Ask us, or check the current position, before you rely on any figure you have read anywhere.
Who gets the gratuity if an employee dies?
Whoever the nomination says, which is exactly why the nomination matters so much and why so few people have made one. A missing or outdated nomination does not destroy the entitlement, but it turns a payment into a process at the worst possible time for a family. If you are in service and have never filed one, do it this month.
My employer says it will be paid with the full-and-final.
It is often paid alongside, but it is not part of it. Gratuity runs on its own obligation and its own timetable, and treating it as one more line in a settlement statement is how it ends up waiting for an unrelated clearance. Our full-and-final guide deals with the settlement itself; this page deals with the two statutory amounts that sit outside it.
Do I have to apply for it, or should they just pay?
The obligation to determine the amount and to pay it does not wait for you to ask. In practice, making a written application anyway is sensible, because it fixes a date and creates a record. Our application drafting service prepares one, and it costs very little compared with the amount usually at stake.
What if they simply do not pay?
There is a defined authority under the Act for exactly this, and delayed payment can attract interest. That is a specific route rather than a general one, which is both good news and a reason to get the papers right — a claim built on a properly documented application and a clear computation is in a different position from one built on recollection.
Can gratuity be forfeited?
Only in narrow circumstances defined by the Act, and those circumstances are a good deal narrower than the ones employers sometimes invoke. “He left without serving notice” and “the handover was incomplete” are not among them. If forfeiture is being asserted, ask for the ground in writing — that one request resolves most of these.
Who is eligible for a statutory bonus?
Employees who meet the conditions in the Payment of Bonus Act, 1965, which include a wage limit and a minimum number of days actually worked in the accounting year. Both of those have been revised over time, so this page prints neither figure. What is stable is the shape: there is a wage limit, there is a days-worked condition, and there is a minimum and a maximum percentage.
Is it payable even if the company made a loss?
The Act provides for a minimum bonus that does not depend on the employer having made a profit in the year. The amount above that minimum, up to the maximum, is linked to the allocable surplus. In other words, a loss-making year does not by itself extinguish the obligation, which surprises a great many small employers.
When must a statutory bonus be paid?
Within a period measured from the close of the accounting year, which is why bonus disputes tend to surface at the same time every year. Employers who treat it as a festival-time discretionary payment rather than a dated statutory one are the ones who end up explaining themselves.
My offer letter says the bonus is discretionary.
Then that contractual bonus is discretionary on its terms. A statutory bonus, if you are covered by the Act, does not become discretionary because a contract describes a different payment as discretionary. Two different payments, two different sources.
I am on a contract through an agency. Who owes me?
That depends on who the employer is for the purpose of each statute, and it is not always the entity whose badge you wore. It is one of the genuinely difficult questions in this area and it is better settled at the start of a claim than halfway through one.
I was a consultant on a monthly retainer.
Then the first question is whether the relationship was actually employment, regardless of what the contract called it. That is decided on how the relationship worked in practice, not on its label. If a great deal turns on it, this is the point to take advice rather than to assume either answer.
What should I check before I accept the figure I was given?
Ask for the working, not the total: which wage figure was used, which components were included, how many years were counted, and how the part-year was treated. Four questions, usually one email, and they settle most disputes without anybody falling out.
How long does your part take?
Our own work — reading the documents, doing the computation, preparing the application or the reply — takes 3 – 10 days. How long an employer or an authority then takes belongs to them, and this page prints no figure for it.
Can you do this for an employer rather than an employee?
Yes, and a good deal of this work is exactly that. Small employers frequently want the computation done correctly before an exit rather than after a dispute, which is both cheaper and considerably less unpleasant. The arithmetic is the same whoever is asking; only the covering letter changes.
Is gratuity taxable?
There are exemptions and they have limits, and those limits are revised. Because the answer also depends on your category of employment and on amounts, this page prints no figures and no thresholds. Take the position on your own numbers before you plan around it.
What documents do you need from me?
Your appointment letter and any revision letters, recent payslips covering the last drawn wages, proof of your joining and last working day, whatever computation or settlement statement you have been given, and any correspondence about it. Photographs are fine and incomplete is fine — we will tell you what is actually missing.
What do you actually do for the fee?
We establish the correct wage base and the correct service count from your documents rather than from anybody’s assumption, do both computations and show the working line by line, tell you plainly where a figure you have been given is right, and where it is not, draft the written application or the reply that the situation needs.
What will this cost me altogether?
Ours begins at ₹2,999, you are told the whole amount before any work starts, and nothing is paid up front. Any charge an authority levies is its own and reaches you as its own figure. If the matter has to go beyond papers and be argued, you engage the advocate directly and settle that fee with them — it does not come through us and we take no part of it.
Related

The papers around pay and an exit

Full-and-final documentation Application drafting Reply drafting Legal notice Experience letter Salary certificate Appointment letter Offer letter drafting PF registration ESI registration Exit documentation guide Writing to an office

Ask for the working, not the total.

Gratuity and statutory bonus are entitlements rather than gestures, they come from two different statutes, and the figure is almost never wrong because of the formula — it is wrong because of what went into it. We establish the correct wage base and the correct service count from your documents rather than from anybody’s assumption, do both computations and show the working line by line, tell you plainly when a figure you have been given is already right, and draft the request, the reply or the notice when it is not. Employers come to us for the same arithmetic in the other direction, before an exit rather than after a dispute, which costs a fraction of what the dispute does. Send the appointment letter, the last payslips and the two dates — that conversation is free, and no money is paid up front.

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