Gratuity and Provident Fund Difference

Gratuity and Provident Fund Difference

Provident fund and Gratuity is two different king of retirement benefit. In case of provident fund equal contribution is made by employees and employer, where in case of gratuity all contribution is made by employer. Difference between provident fund and Gratuity has been explained in terms of contribution, calculation formula, interest earned, fund management and loan facility.

1.    Contribution

In case of Provident fund equal contribution is made by the employer and employees, where in case of gratuity all contribution is made by the employer.

2.    Formula

Formula for calculating the retirement benefit for provident fund and gratuity has been given below;

Gratuity = Gross Salary Last Year x Number of Year Work

Provident fund = Employer Contribution + Employee Contribution + Interest

3.    Interest Earned

Provident fund is invested in bond or other securities and interest earned is distributed among the employees. Where in case of gratuity, there is no concept of interest sharing.

4.    Fund Management

Provident fund account or fund is managed by independent trust, because provident fund is regarded as employee money or fund, where gratuity is maintained by the company itself.

5.    Loan Facility

Employee can take loan from the provident fund account, where in case of gratuity this facility is not available. Gratuity is only payable in case of termination of service (voluntarily resign, retirement, forced termination)