Gratuity Act: HR Responsibilities from Joining to Exit

The Payment of Gratuity Act, 1972 is a long-term employee benefit law that often comes into focus only at the time of exit. However, most gratuity-related disputes arise because HR controls were weak much earlier—at joining, during service, or in record maintenance.

For HR teams, gratuity compliance is not a one-time settlement activity. It requires continuous discipline from onboarding to separation, covering eligibility tracking, wage definitions, nominations, and timely payment.

This article explains HR responsibilities under the Gratuity Act across the employee lifecycle.

Applicability of the Payment of Gratuity Act

The Act applies to:

• Establishments employing 10 or more employees

• Factories, shops, offices, and other notified establishments

Once applicable, the Act continues to apply permanently, even if employee strength falls below 10.

HR must track applicability at establishment level, not location-by-location assumptions.

HR Responsibilities at the Time of Joining

Eligibility Awareness

While gratuity becomes payable only after completion of five years of continuous service, HR should:

• Communicate gratuity coverage clearly in appointment letters or policies

• Avoid misrepresenting gratuity as discretionary

Gratuity is a statutory right, not an employer benefit choice.

Nomination Management

HR must ensure:

• Gratuity nomination is obtained after completion of one year of service

• Nominations are updated upon marriage or family changes

Missing or outdated nominations delay settlement and create disputes.

During Employment: Ongoing HR Controls

Continuous Service Tracking

HR must accurately track:

• Breaks in service

• Leave, lay-offs, and interruptions

• Transfers within group entities

Incorrect service continuity data is a major compliance risk.

Wage Definition for Gratuity

Gratuity is calculated on:

• Last drawn Basic + Dearness Allowance

HR should avoid:

• Artificial restructuring of wages to suppress gratuity liability

Such practices are routinely challenged during disputes.

At the Time of Exit

Eligibility Triggers

Gratuity becomes payable on:

• Resignation after five years

• Retirement or superannuation

• Death or disablement (no minimum service condition)

HR must not deny gratuity due to misunderstanding of eligibility triggers.

Payment Timelines

Gratuity must be:

• Calculated promptly

• Paid within 30 days from the date it becomes payable

Delays attract interest liability, even if the delay is unintentional.

HR Execution: What Prevents Disputes

Strong HR practices include:

• Standard gratuity calculation templates

• Clear exit checklists covering gratuity

• Maker–checker review before payment

• Proper documentation and acknowledgements

Most gratuity disputes arise due to delays or poor communication, not calculation errors.

Conclusion

The Gratuity Act demands lifecycle-based HR compliance, not end-stage firefighting. HR teams that manage nominations, service records, wage definitions, and timelines proactively can ensure smooth exits and avoid legal exposure.

Gratuity compliance reflects an organisation’s maturity and respect for statutory employee rights.

HR Compliance Action Checklist: Payment of Gratuity Act

🗹 Confirm establishment-level applicability of the Act
🗹 Communicate gratuity coverage clearly at joining
🗹 Obtain and update gratuity nominations
🗹 Track continuous service accurately
🗹 Apply correct wage components for calculation
🗹 Identify eligibility correctly at exit
🗹 Calculate gratuity using statutory formula
🗹 Pay gratuity within 30 days of eligibility
🗹 Issue payment acknowledgements
🗹 Maintain gratuity records and registers

Gratuity Act: HR Responsibilities Across the Employee Lifecycle

Conclusion--

Effective labour law compliance depends on how well HR operations, payroll, and business processes work together. When compliance is embedded into everyday workflows, organisations reduce risk, improve accuracy, and build sustainable governance systems. HR teams that prioritise integration over isolation are better positioned to manage compliance confidently and consistently.