How to consider an Employee for Gratuity Income & calculate it?

What is Gratuity?

Gratuity is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete 5 or more years with the company. It can be understood as a form of tip paid by employer to the employee for services offered in the company. Since tips are a function of culture, various countries have various gratuity limits that are doled out by employers.

So, with ERPNext, how to calculate these types of Employee Benefits, which is not actually a Salary, but still a expense & have to pay in term of Bonus/Benefit. Similar to Gratuity, Diwali Bonus also there which is paid as One month salary on this Festival (usually in India). Either it should be included in Salary Slip or not?

Please guide, if need to manage this via custom app, but how. Kindly share your views.

How would you do it without an ERP system? Say in excel? Not sure if it is an ERPNEXT question or an auditor question.
Maybe you could research those rules first and we could help implement in the system.

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Definitely, it’s ERP question, any employee who works on criteria mentioned, would able to get benefits. Now, the question is how to manage this, because we already have Earning & Deductions, Gratuity & Bonus are in Earning.

For Employer, it’s like Expenses/Loss while for Employee, It is benefit. Should we link it to Salary Part or not mapping it with Payroll instead make the only entry for this. I don’t think so it should be managed via Expenses Claim.

I’m totally confused, how to manage it. There are many Leader who using ERPNext for Years, how did they managed this. That’s why, I raised concern, to help me and my collegues as well.

Show us how you do it in excel. Or on a piece of paper & I will (try) show you in ERP.

I have done payroll implementation with HRA, Tax deductions, Pension contributions, Over time etc, but took what used to happen in excel (under guidance of an auditor) and automated it in ERPNext payroll module.

If you dont know what you need exactly, and how to apply all the rules (or dont know the rules) in excel or a piece of paper then ERPNext will not automatically solve your problem.

First Step paper/pen, then excel (use formulas) and then ERPNext (system).

These are my thoughts.

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Regarding gratuity please find below the calculation being used in UAE

It is kind of end of service benefit which companies are accruing on monthly basis for every single employee. By accruing i mean that there s no cash entry. Its only an accrual entry which is posted just to record the liability.

Lets say an employee has monthly salary of 10,000
The monthly gratuity for this employee will be calculated ad follows
10,000×12(months)÷365(days)×21(gratuity days after completion of 1 year service) = 6904(yearly expense)÷12= 575 (monthly expense)

Now this 575 for this employee will be recorded as expense and also as liabilty associated with that particular employee.

At any point of time the system should be able to show how much gratuity has been accrued for any particular employee.

Please note that 21 days can vary depending upon the nature of contract but basic calculatio remains same.

So the point is that gratuity is non-salary and non-cash expense but it should be associated to employee.

Hope this will help

hello, we are in ksa and we would like to know how you entered EOS for UAE its similar for us. we dont need the calculation we need how you handled it in ERPnext

This may help Salary Slip Formula Calculation - #2 by umair

this is not exactly what we are looking for ill explain more
in KSA and i think UAE also, we have End Of Service by law. the idea is you accumulate an end of service amount to be paid at the contract termination.
So the idea is you have a calculation based monthly salary but not paid in cash just recorded in the liability provisions, then at the contract end or termination you issue part, all or non of the amount based on the case.
here you can find some more information.
note that we are not asking how do we calculate we are asking how to make the system accrues an amount each month but not consider it as paid instead put that amount in a provision account in the liabilities and when the employee end his services this award will be calculated according to law and could be handled by a JV

ok maybe search up bonus for ‘concrete’ ideas?

Dear All, the gratuity laws in GCC differ from each country. In Bahrain it starts once the probation period (1st 3 months) is completed. Employee is eligible for 0.5 pay for 1st 3 years of employment, get 1 X of monthly pay from 4th year onwards. Should it be paid on base plus allowance also differs in each county and few good employers actually calculate on total amount.

I do not think ERPNext can accommodate it in core.You need to custom build it for each country. We are about to complete it for Bahrain which calculates on daily basis. Once done you can link the total amount to an account from COA to pass either a daily/weekly/monthly entry. The auditors want the accrual to be done once in a year which I understand also falls under the commercial law. Speak to your auditor for the Account Head under which it needs to be accrued.

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yes i agree law are different and we just asked to see if there is a way to record this accrual month by month with the salary slip. we always can do it once a year according to the auditors even in KSA by a JV.

Would you like to help me out to process payroll
How to define TAX slab , etc

Hi, can you please advise how you did this. I’m trying to do something similar

This was done 3 years ago on V11. You would need to fix it for v13.