Chapter 62 — Gratuity and end-of-service benefits

In many countries an employee who leaves is owed a lump sum for the years they worked: gratuity, end-of-service benefit, severance pay under a statute. It is often the largest single payment a company makes to one person, it is calculated once, at the end, from figures that span years, and it is the payment most likely to end up in front of a labour court. This chapter is how Operentra works it out, what it is measured on, and where it appears.

What this chapter covers

• 62.1 How gratuity is calculated
• 62.2 The wage it is measured on, and gratuity funds
• 62.3 Gratuity in the final settlement

The concept

An end-of-service award has four parts, all set by law or by the contract where the contract is better: eligibility (a minimum length of service), the rate (days or months of wage per year of service, often stepping up after a number of years), the wage it is measured on (basic salary, or the full wage with allowances), and adjustments (a cap, a reduced share for someone who resigned, rules for part years). The company's obligation grows every month someone works, so a well-run company knows the figure long before anyone resigns, and many set money aside for it.

How Operentra handles it

• The rule comes from the workspace's country: the eligibility threshold, the rate, the wage it is measured on, any cap and any reduced share for a resignation. Where the country has no statutory award, as in the United States, none is calculated.
• The wage is the last basic salary, the one payroll pays: what the salary structure's Basic component gives on the gross of the employee's salary assignment (the full wage where the statute says so); service runs from the joining date to the separation date, part years included.
• The final settlement (Chapter 82) shows the award with the years and the threshold, lets HR enter a different figure, and adds it to the cash settlement.
• A gratuity fund (Chapter 61) records money set aside for awards, kept on the company's books or paid to an outside provider.
• Who: whoever runs offboarding (offboarding.manage: Super Admin, HR Manager).

Walkthrough

Northwind is a US company and has no statutory gratuity: its leavers' settlement previews read "Not applicable". The walkthrough uses Dunebridge Technologies, in the UAE, where the award is the end-of- service benefit of the labour law. Isabel Cruz resigned on 15 March 2026 after two years and nine months on a basic of 11,700 and was settled with an award of 22,522.50; Dinesh Fernando left on 15 June 2026, a year and ten months in, and was settled on 22 June with an award of 8,454.60 on a basic of 6,600; Prakash Thapa, an accounts assistant a little over a year in, is working out a resignation.

62.1 How gratuity is calculated

In a UAE workspace the award is 21 days of basic pay per year for the first five years and 30 days per year after that, with a day's pay taken as a thirtieth of the monthly basic, part years counted pro-rata, and the total capped at two years' basic. Nothing is due before one year of service. Isabel's 2.75 years earn 57.75 days; at 390 a day (11,700 ÷ 30) that is 22,522.50.

Other countries measure differently, and the workspace's rule is the one applied. Saudi Arabia pays half a month's full wage per year for the first five years and a month per year after, and a worker who resigns early takes a fraction of it by length of service; India pays fifteen days' wages per completed year with a month reckoned at twenty-six working days, after five years, up to the statutory ceiling. The preview always states the threshold the workspace's rule uses, so the employee's figure can be explained against the law.

62.2 The wage it is measured on, and gratuity funds

The award is measured on the last basic salary: what the salary structure's Basic component gives on the gross of the employee's current salary assignment, the same basic the payslip pays. That is why the Basic component matters even in a workspace that pays one gross figure (Chapter 52), and why an edit to the structure moves the award too. Where the statute measures on the full wage, the gross of the assignment is used. There is no per-component setting for it; an allowance does not join the base because of a flag. If the structure has no Basic component at all, the gross is used rather than nothing.

A company that sets money aside for awards records it as a gratuity fund (Chapter 61): kept on the company's books, so each month's accrual is a liability rather than a payment, or paid to an outside provider with each remittance recorded. The fund records the money; the award itself is always calculated by the rule at the end.

62.3 Gratuity in the final settlement

When an employee leaves (Chapter 82), the settlement preview lists the gratuity beside leave encashment, any provident-fund balance and outstanding loans: whether the employee is eligible, the years of service, the threshold, and the amount. Prakash's preview shows just over a year against the one-year threshold, eligible, measured on a basic of 5,100. Complete Settlement accepts the calculated figure or a figure HR enters instead, for a contract that is more generous than the law or an agreed amount, and records it on the separation. The form has no reason field for a changed figure, so write why in the separation's reason. The award joins the cash settlement; Isabel's and Dinesh's settled records show the 22,522.50 and the 8,454.60 with the years and last basic.

What happens next

• Offboarding (Chapter 82) is where the settlement is completed and the experience letter issued.
• Reports (Chapter 65) list settlements with their components.

What the employee sees

Their settlement figure, with the gratuity, in the final settlement email and the experience letter that follows it.

Common mistakes

1. A gross-only salary structure. The award falls back to the gross, which overstates it where the law measures on basic.
2. The wrong joining date. Years of service run from it; a transfer in from a group company may carry service the record does not show.
3. Changing the figure without a note. The figure goes to court if disputed; write in the separation's reason why it differs from the rule.
4. Expecting an award in a country without one. The preview says Not applicable; a contractual severance is an override or an adjustment.
5. Treating a gratuity fund as the award. The fund is money set aside; the award is worked out by the rule.
6. Forgetting the resignation reduction where it applies. It is in the rule; read the preview before telling someone a figure.

Practice

Use your own trial workspace, not a customer's; one in a country with a gratuity rule shows the calculation.

1. Open an employee's salary assignment and its structure, and work out the basic the award would use: the Basic component's share of the gross.
2. Start a separation (Chapter 82) for a throwaway employee and read the settlement preview's gratuity: years, threshold, amount.
3. Work the amount out by hand from the rule in 62.1 and compare.
4. Note the figure HR would enter for a contract that pays one month per year, and write why in the separation's reason.
5. Cancel the separation.

Quiz

1. Where does the gratuity rule come from?

The workspace's country: eligibility, rate, the wage it is measured on, any cap and any reduction for a resignation.

2. What wage is the award measured on?

The last basic salary, as the salary structure gives it on the current assignment's gross, or the full wage where the statute says so; the gross if the structure has no Basic component.

3. Work out a UAE award for 3 years on a basic of 9,000.

63 days (3 × 21) at 300 a day (9,000 ÷ 30): 18,900.

4. What does a gratuity fund do?

Records money set aside for awards, on the books or with a provider; the award is still calculated by the rule.

5. Can HR change the calculated award?

Yes, by entering a different figure when completing the settlement; write the reason on the separation.