Employees not covered under gratuity Act

I have a doubt for gratuity calculation for employees not covered under gratuity Act.

a. Do we have a standard formula for calculation of gratuity benefit for not covered employee.
b. The formula used in common, in my opinion is for determining the taxability portion of gratuity received and is mentioned in IT Act not in gratuity Act. which is 1/2 month's salary for every completed year of service based on last ten month's average salary.

Seek clarification from readers

Rajesh Dalmia

Dear Rajesh,

The Gratuity calculation is as under:
last basic+da/26*15* no. of years (Not less than five)

Dear Jai,

Thanks for your reply. The formula you have mentioned holds true for people covered by the Act.

My question is How to calculate for people not covered under Act.

Hi Dalmia,

Hope you are doing good. well coming to your query the staff/employees who are not covered by the Gratuity act can also get the gratuity fund but it's entirely depends on the company's capability, turnover and especially employer interest towards the payment of graduity.

The manner of calculating gratuity is different for those who are not covered under the act and it's given below.

First the average salary is calculated: for this the average of last 10 month's salary is taken(this will include the basic plus dearness allowance plus commission as a percentage of turnover achieved by the employee). Divide this average salary by 30 (ignore fractions). Now, multiply this amount by 15 and further with the number of years of service put in. Dividing the salary by 30 instead of 26 does put those not covered by the Graduity Act at a disadvantage.

I will cite an example for this. For instance, an employee's last 10month's salary is given as Rs.1,50,000/-. Divide this 1,50,000 with number 10 to see the average .Then it is Rs.15000/-. After this step we have to divide this 15,000 by 30 (no.of days in a month) so that we can get Rs.500/- as daily salary. Now figure 500 will be multiplied by 15. i.e;500*15=7500. Now this 7500 is multiflied by no.of years of service put in. and lets say it as 7 yrs totally. Then 7500*7 =52,500.

so he gets Rs.52,500/- as his gratuity amount.

Hope I made you clear in this regard.

Pls lemme know if you still have any more queries on this.

Dear members pls dont hesitate to lemme know if my calculation went wrong at any point. Hope Iam not .

Hi Padma,

Thanks for your detailed response.

The calculation mentioned by you is one of the options as per IT provisions, to arrive at taxable and non-taxable part of gratuity paid to an employee, who is not covered by Act. I have also tried to search a lot on this matter but it seems that this is the most acceptable norm to calculate gratuity for employees not covered by Act.

Thanks once again, for your response.

Rajesh