5 August 2026 · Accounting
Gratuity Accrual Accounting
For accounting, gratuity is not a surprise cost at exit; it is an employee-benefit liability under IAS 19 that builds every month of service. Book a provision as it accrues so the cost is matched to the period the employee earns it. A workable SME approach is to provide one-twelfth of each employee's current annual entitlement each month; a larger or older workforce needs a formal actuarial valuation using the projected unit credit method with discounting. Either way, the liability sits on the balance sheet and grows with headcount and tenure, so your cash and your P&L are never blindsided by a long-service payout.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Match cost to service
Recognise it as it is earned.
- EOSB is an IAS 19 obligation.
- The liability builds every month.
- Not a lump recognised at exit.
- Sits on the balance sheet.
A simple monthly provision
Practical for smaller teams.
- Provide 1/12 of annual entitlement monthly.
- Update as basic wages change.
- Reconcile the provision at year-end.
- Keep it per employee.
Actuarial valuation
For larger workforces.
- Projected unit credit method.
- Discounting and assumptions applied.
- Turnover and salary growth modelled.
- Used where the balance is material.
Related guides
Frequently Asked Questions
For accounting for gratuity.
How do I account for gratuity?
As an IAS 19 employee-benefit liability accrued monthly. Book a provision as service is earned rather than recognising the whole cost at exit.
What is a simple monthly accrual?
One-twelfth of each employee's current annual gratuity entitlement, updated as basic wages change and reconciled at year-end.
When do I need an actuarial valuation?
When the workforce is larger or older and the liability is material. The projected unit credit method with discounting is then used.
Where does the liability sit?
On the balance sheet as an end-of-service or employee-benefit provision, growing with headcount and tenure.
Does the provision affect corporate tax?
Accounting provisions feed taxable income through the CT rules; the deductibility of movements should be reviewed, so treat it as an accounting-to-tax point at year-end.
Can Exiloz set up the accrual?
Yes. We build the monthly provision, keep it per employee, and coordinate an actuarial valuation where the balance warrants it.
Accrue it properly
Exiloz builds a monthly gratuity provision that holds up at audit.