Gratuity is a monetary benefit that employers pay to their employees as a token of appreciation for their long service and contributions to the company. It is a statutory benefit in India, governed by the Payment of Gratuity Act, 1972. The Act applies to all establishments with ten or more employees, except government establishments and educational institutions.

Eligibility for Gratuity:
To be eligible for gratuity, an employee must have completed at least five years of continuous service with the employer. Continuous service includes periods of leave with wages, such as sick leave and casual leave. However, periods of absence without leave or on paid leave without wages will not be counted as continuous service.

Gratuity Fund:
Employers typically create a gratuity fund to fulfill their gratuity obligations. The fund is managed and invested to ensure that sufficient funds are available to meet gratuity payouts when employees become eligible. Employers can manage the fund themselves or invest in gratuity group insurance policies with insurance companies.

Requirements:

To open a gratuity fund, employers must meet the following requirements:

• The establishment must have ten or more employees (except government establishments and educational institutions).
• The employer must have a gratuity policy in place.
• The employer must appoint trustees for the gratuity fund.
• The employer must open a bank account for the gratuity fund.

How to open a gratuity fund

To open a gratuity fund, employers can follow these steps:
1. Set up a trust deed and appoint trustees. The trust deed is a legal document that outlines the rules and regulations of the gratuity fund. The trustees are responsible for managing the fund and ensuring that it is used for the intended purpose.
2. Decide on the investment policy for the gratuity fund. The investment policy should be developed in consultation with a financial advisor and should take into account the risk tolerance of the employer and the needs of the employees.
3. Open a bank account for the gratuity fund. The bank account should be held in the name of the trustees of the gratuity fund.
4. Start making contributions to the gratuity fund each month. The amount of contribution is based on the Basic Salary of Active Employees.

Benefits:

There are several benefits to opening a gratuity fund, including:

• Tax benefits: Contributions to the gratuity fund are tax-deductible for employers.
• Investment income: The gratuity fund can be invested to generate income, which can help to offset the cost of gratuity payments.
• Financial security: A gratuity fund can provide employers with financial security in the event of many employees retiring or leaving the company simultaneously.
• Employee satisfaction: A gratuity fund can help to improve employee morale and satisfaction, as it shows that the employer is committed to taking care of its employees.

Opening a gratuity fund is a good way for employers to meet their gratuity obligations and provide financial security for their employees. It is also a tax-efficient way to save for gratuity payments. Employers who are considering opening a gratuity fund should consult with a financial advisor to discuss the best options for their business.