Gratuity calculation on 365 days

Introduction

Gratuity is a statutory payout provided to employees upon exit—resignation, retirement, or termination—after completing a minimum tenure as defined by law. While the law mandates the gratuity amount as a certain number of days' salary per year of service, it does not prescribe how to calculate the per day salary.

By default, Keka uses a 30-day month for this purpose. However, several companies—especially those using a 365-day basis for Loss of Pay (LOP) and other payroll computations—have reported mismatches in gratuity calculations, leading to discrepancies during Full & Final (F&F) settlements.

To resolve this, we are introducing support for 365-day based gratuity calculation. This will allow companies to align gratuity computation with their internal payroll policies, ensuring accuracy and reducing the need to manually explain deviations in F&F amounts.

What’s the Problem?

Currently, gratuity in Keka is calculated as:

(Last drawn salary / 30) × 15 × Number of years completed

Why Is This Change Needed?

Organizations using 365-day calculations want consistent logic across all payroll elements, including:

• Loss of Pay (LOP)

• Gratuity

• Accrual reports

• F&F statements

Introducing this feature will eliminate the gap between expected and system-calculated gratuity, ensuring trust and transparency.

Feature Details

How It Works

• A toggle will be introduced in Pay Schedule Settings allowing companies to choose between 30-day or 365-day gratuity calculation.

• If 365-day calculation is enabled, gratuity will be computed using:

  (Annual value of last drawn salary / 365) × 15 × Years of service

Where It Applies

• Full & Final (F&F) Settlements: Gratuity component will reflect the selected calculation method.

• Gratuity Liability Report: Shows gratuity obligations based on 365-day logic if enabled.

• Gratuity Accrual Report: Will align with the selected calculation method for consistency.

Example – UAE Gratuity Calculation (365-day method)

Assume:

• Last drawn monthly salary: AED 10,000

• Annual salary = AED 120,000

• Years of service = 5

Gratuity = (120,000 / 365) × 15 × 5= AED 24,657.53

Navigation

1. Admins can enable 365-day gratuity from Payroll → Settings → Pay Schedule Settings.

   

2. The UI label for the toggle will be updated to clearly explain the implication of 365-day vs 30-day method.

   

3. The update will reflect in:

   • F&F calculation

   • Gratuity Liability Report

   • Gratuity Accrual Report