Gratuity is a lump sum paid to an employee at the end of service, calculated from years of service and the last wage. We calculate every employee's accrued gratuity liability, compare it with the fund's assets, reconcile FDRs and interest receivable, settle leavers and prepare the gratuity fund's annual accounts and audit documents.
Our team has prepared three consecutive years of accounts and audit work for a corporate gratuity fund. The to-do list was what almost every fund needs: add interest receivable, add the accounting policy note, show leavers' settlements in the right place and obtain certificates for FDRs under lien.
On this page
How gratuity is calculated
Under the definition in the Bangladesh Labour Act, an employee with at least one year of service is entitled, for each completed year, to 30 days' wages at the last wage rate, or 45 days' wages per year if service exceeds ten years. Many companies' policies pay more, in which case the policy applies. Which wage (basic or gross) is used is set in the policy.
Fund versus liability: the key comparison
How the company shows the gratuity liability and expense in its own financial statements is a question for the accounting standard (IAS 19). Large companies may need an actuarial valuation. We prepare the employee data and calculations, and provide them to the actuary where one is needed.
| Figure | Where it comes from |
|---|---|
| Total gratuity liability | Sum over employees of years of service × policy days × last daily wage |
| Fund assets | Bank, FDRs, interest receivable and other investments |
| Deficit or surplus | Assets minus liability; a deficit means the company must contribute more |
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What you receive at year-end
- Gratuity fund statement of financial position and income and expenditure account, with policy notes
- Employee-wise liability list
- FDR schedule, interest receivable and tax deducted at source, with liened FDRs flagged
- List of settlements for employees who left during the year
- Every schedule the auditor needs
Frequently asked questions
What if there is no gratuity fund?
Then the company pays gratuity from its own accounts when service ends and carries the liability in its statements. A separate fund keeps the money set aside, which is safer for employees.
If we have a provident fund, do we still owe gratuity?
They are separate benefits. Which applies to your company depends on the Labour Act and your policies. Take your legal adviser's view on this.
Is tax deducted on gratuity at final settlement?
Gratuity from an approved gratuity fund has a tax exemption up to a limit set in the Income Tax Act. Check the current limit, or ask at tax.eomsbd.com.
Talk to us about your accounting work
The first conversation is free. You get a written price and timeline before any work starts.
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Written by the EOMS Hisab accounts team. Last reviewed: . Bangladesh rules change with each Finance Act, SRO and circular. Check rates and thresholds against the latest official source before relying on them.