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What Our Plans Cover
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Funding of the statutory gratuity...
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Investment management of the fund...
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Payment of gratuity as employees b...
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Actuarial valuation of the liabili...
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Optional life cover element on som...
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Administration and record-keeping...
Who Can Consider This Plan?
- A registered organisation with employees on its payroll
- A minimum group size, commonly seven to twenty depending on the cover
- Employees actively at work on the date cover commences
- Accurate census data — pricing follows the population profile
- Uniform benefit design within each defined grade
What May Not Be Covered?
- Gratuity for employees below the qualifying service period
- Amounts beyond the statutory or scheme entitlement
- Any guarantee of investment return, on market-linked variants
- Withdrawal of the fund for purposes other than gratuity
- Employees not included in the scheme membership
Always check the policy wording before you commit.
Why Choose Wealth & Covers?
- Expert advice to choose the right plan
- Plans from leading insurance companies
- Hassle-free process and documentation
- End-to-end support, including claim assistance
- Dedicated relationship manager
Our Insurance Partners
- Star Health Insurance
- Care Health Insurance
- Niva Bupa Health Insurance
- HDFC ERGO
- ICICI Lombard
- Bajaj Allianz
We represent multiple providers to help you find the most suitable option at the best price.
- Expert Guidance Personalised advice from experienced insurance professionals.
- End-to-End Support From choosing the right plan to claim assistance, we are with you always.
- Claims Assistance Hassle-free claim support to ensure you get what you deserve.
- Transparent Process Clear information, easy documentation and a hassle-free experience.
Overview
Gratuity is a statutory payment owed to employees who complete five years of continuous service, calculated on last drawn salary and years of service. The liability accrues quietly from an employee's first day and falls due, often in a lump, when they leave.
A group gratuity scheme funds that liability in advance. The employer contributes to a fund managed by an insurer, the fund earns a return, and payments are made from it as employees become entitled. It converts an unpredictable balance sheet liability into a planned annual contribution.
There are accounting reasons too. Actuarial valuation of gratuity liability is required under accounting standards, and a funded scheme allows that liability to be offset by a corresponding asset rather than sitting unfunded.
Who should consider it
Employers with ten or more employees, for whom the Payment of Gratuity Act applies. Companies with an ageing workforce approaching the five-year threshold in numbers. Any organisation whose auditors have raised an unfunded gratuity liability.
Benefits
- Converts an unpredictable liability into a planned annual contribution
- The fund earns a return, reducing the net cost of the obligation
- Contributions are generally deductible as a business expense
- Allows the accounting liability to be offset by a matching asset
- Removes the cash flow shock of several simultaneous exits
- Actuarial valuation support usually provided by the insurer
What is covered, and what is not
Read the right-hand column first. It is the one that decides whether a claim is paid.
Typically covered
- Funding of the statutory gratuity obligation
- Investment management of the fund by the insurer
- Payment of gratuity as employees become entitled
- Actuarial valuation of the liability
- Optional life cover element on some schemes
- Administration and record-keeping for the fund
Typically not covered
- Gratuity for employees below the qualifying service period
- Amounts beyond the statutory or scheme entitlement
- Any guarantee of investment return, on market-linked variants
- Withdrawal of the fund for purposes other than gratuity
- Employees not included in the scheme membership
Inclusions and exclusions vary between providers and between plans from the same provider. The wording in your own policy document is what governs — we will walk you through it before you buy.
How it works with us
- 1 We profile the workforce, not just the headcount Age bands, salary bands, locations and dependants. A scheme priced on headcount alone is priced on the wrong data.
- 2 Benefit design before market approach Sum insured basis, family definition, waiting periods and co-payment. These decide the premium far more than the choice of insurer.
- 3 Quotes compared on claims service as well as price A cheap scheme with a slow TPA costs you in employee goodwill every single month.
- 4 Onboarding and employee communication We run the enrolment, produce the cards and explain the scheme to your people. Benefits nobody understands are benefits nobody values.
- 5 Mid-term additions and an annual review Joiners and leavers handled by endorsement, and a renewal built on your actual claims data rather than a standard loading.
Important considerations
The things a brochure tends to leave out. Read these before you decide.
- Get an actuarial valuation before deciding the contribution. Most employers underestimate the accrued liability, sometimes substantially.
- The liability grows with salary as well as with service. A funded scheme sized on today's salaries needs revisiting as the wage roll rises.
- Fund it before the workforce ages into the threshold. Several long-serving employees leaving in the same year is a real cash flow event.
- Compare guaranteed and market-linked fund options against your own risk appetite. The liability is fixed; the funding return need not be.
- Keep membership records accurate. An employee omitted from the scheme is still owed gratuity — the obligation is statutory, not contractual.
Documents required
- Company registration and GST details
- Employee census — age, gender, salary band and location
- Details of dependants where family cover is included
- Existing policy schedule and claims data, where renewing
- Organisation chart, where cover varies by grade
- Signed proposal form from an authorised signatory
Frequently Asked Questions
Is a funded gratuity scheme mandatory?
The gratuity obligation is statutory for employers with ten or more employees; funding it through a scheme is not. Most employers fund it because the alternative is meeting an unpredictable liability from cash flow and carrying it unfunded on the balance sheet.
How is gratuity calculated?
By a statutory formula based on last drawn salary and completed years of service, payable after five years of continuous service. Because it uses last drawn salary, the liability grows with your wage roll as well as with tenure.
What happens if an employee leaves before five years?
No gratuity is payable, except in cases of death or disablement where the qualifying period does not apply. The fund simply continues for the remaining members.
Are the contributions tax deductible?
Contributions to an approved gratuity fund are generally deductible as a business expense, subject to the conditions in force. That treatment is one of the main reasons to fund rather than to provide.
Can we use the fund for anything else?
No. An approved gratuity fund is restricted to meeting gratuity obligations. That restriction is what secures its tax treatment, and it is the trade-off for the deduction.
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