prasadkashinath Started The Discussion:
For the purpose to calculate Gratuity under the shops & establishment act, what should be minimum service length and the salry, whether basic or gross.


I will make it more clear that:-

The organisation is covered under the shops & establisment Act by its nature of business.
Off course Gratuity will be calculated under the payment of gratuity Rules, 1973.

The calculation of Gratuity should be different based on the establishment whether it is covered under the Factory Act or S&E Act.
Posted 11th February 2008 From India, Benaulim
Dear Friend Gratuity is paid under Grtuity act not shops and establishment act Minimun he should have been worked 5 years cotinously in an organisation. Vasanth
Posted 11th February 2008 From India, Bangalore
Hi - Agreed with Vasu that Gratuity is paid as per Gratuity Act and not as per shop and establishment act however below is the formula for calculation of Gratuity

Basic * 15 / 26 * years = Gratuity not more than 3.5 lacs

Basic = Last Drawan Basic

15 = Halof of Basic

26 = 26 working days in a month

Year = Year of serivce which should be more that 5 years of continous employment

Posted 11th February 2008 From India, Pune

Just one correction 15 is not half of basic It is the number of days

An employee is eligible for 15 days of wage per year of completed service if he comp0letes 5 years

One day wage is calculated as per the Supreme Courts observation dividing the Basic +Da by 26 days.

That is how thge formula Last drawn basi+Da*15*Number of years of service/26

Posted 11th February 2008 From India, Chennai
Shiva 15 is not half the wages It represents 15 days per year of service 26 represents a month as decided by the supreme court Siva
Posted 11th February 2008 From India, Chennai
DA is also included in the basic for calculation of Gratuity. If the total service is 35 years then upto 30 years the above formula including Da is OK but for remaining five years gratuity is calculated taking into account one month salary for five years (in excess of 30 years). If the amount calculated is more than Rs.3.5 lakhs it is limited to 3.5 lakhs only. But when it falls below 3.5 lacks it will be as per actual. Gratuity is paid once in a whole period of service only after separation from the service.
Posted 12th February 2008 From India, Calcutta
Hi Mr. Siva from chennai has answered correctly and I fully agree with him. regards R G NAGENDRA
Posted 12th February 2008 From India, Mumbai
Dear All,

i have a point
an establishment started with 4 employees and in the 4th year there were 7 employees. in the middle 4th year the no of employees raised to 12.

Now my point is

Whether the no of years for calculation of gratuity will be counted from the date of joining of employee no 1 who is still in service or from the date act become applicable to the establishment.


Posted 12th February 2008 From India, Delhi
Mr Singh I saw your posting on gratuity as under If I am permitted to interfere, I do not think there is any such provision in the Act I will be thankful if you could throw some light on this Siva
Posted 12th February 2008 From India, Chennai
You are correct nothing has been mentioned in the act that for every year of service in excess of 30 years of service one month's pay will be given. Actually this rule is applicable in some of PSUs. But I would like to mention that in public sector undertakings with the approval of board employee can obtain better terms of gratuity from their employer under any award/agreement/contract. In recommendation/observation of the 116th Report presented on the 29th August 2001 of the Committee of Raj Sabha allows do do so. The action taken report of the committee is quoted below:
"Section 4(3) of the Payment of Gratuity Act provides for the upeer ceiling of the amount payable as gratuity to an employee. In case however the employees can obtain better terms of gratuity from their employer under any award/agreement/contract from an earlier date, higher amount of gratuity is possible. There should not be any bar on any establishment/employer to provide better terms of gratuity from an earlier date. If any PSU has allowed higher gratuity from a retrospective date without such contract/agreement, such decision is not covered under the provision of the Act. Such violation of law does not call for amendment of the Act." Unquote. The interpretation of rule by parliament is like this.
Posted 18th February 2008 From India, Calcutta

Thanks for the discussion & we have forget to point one important thing,

if one has got the salary of 240 days in a year, other wise that year would not be counted for calculation of gratuity,

eg- suppose one has not worked minimum of 240 days in a yaer due to some reason, but has served the industry for more that 15 years, in that case one will get gratuity for how many years - 14 or 15 ?

Posted 18th February 2008 From India, Delhi
Merely because an employee has not worked for 240 days will not make him lose the benefit. A letter indicating break in service should have been given to him. Otherwise it will be deemed that he has the continuous service as prescribed under law.

This is my understanding of the Act and I had been following. I have also stopped gratuity in a few cases for the years based on this. However I will check this provision once again

Posted 18th February 2008 From India, Chennai
Dear All

I have a doubt. In factories act, for salary computations, we take 26 days a month basis and pay salary for all MR rated workers. This is because Maximum 48 hrs a week = 48*52=2496 hrs per year=208 hrs per month= 208/8=26 days a monthbasis

However under Shops & estab Act (i.e. for offices not covered under Factories ACt) can we need maintain the same 26 days a month basis for salary purposes or shall I pay on 30 days a month basis for salary purposes ?

Pl clarify
Posted 23rd May 2008 From India, Madras
I was working with Regd. Firm (Partnership) from 7/9/1994 to 30/04/2007, at the time of left office I have not received any benefit from the Firm. So you are requested to let me know about all benefit including gratuity which I have to claim said firm (Please specify Act also)
Posted 12th September 2008 From India, Mumbai
in case of contract service later regularised whether contract service period shall be considered in caliculating the gratuity amount or not. EMM Reddy MECON
Posted 10th December 2008 From India, Delhi
If by contract service you mean service for a temporary period but on rolls of the company, the period will be counted for the purpose of gratuity calculation provided during the said period he/ she had worked at least for 240 days on a yearly basis.

It is very common to appoint employees on a contract for one or two years renewable or extendable at the discretion of the management. Since the employee is engaged in a permanent job, he cannot be treated as a casual employee but he is eligible for all the rights of a regular employee.

However, if he was not a direct employee but worked with you as an employee of your contractor, then your relationship with him would be different and there would not be any employer- employee relationship in between you and the said employee. If such an employee takes up employment with you, then since that date only he becomes your employee and his past service with you will not be counted for gratuity payable by you.


Posted 10th December 2008 From India, Kannur
Dear All, Why 26 days are taken in consideration for the calcukation of gratuity, minimum wage. Pls clarify. regards Saurabh
Posted 9th November 2009 From India, Mumbai
Dear Saurabh,

We are bound to consider 26 as per section 4 of the Payment of Gratuity act, 1972.

With Regards,
Sr. Associate
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)
Office: 311, AKD Tower, Sector 14, Gurgaon
(M) 09810405361 (O) 0124-4264449
Posted 11th November 2009 From India, Delhi
hi satish prakash,

gratuity payable = [15*(last drawn basic + DA)*no.of yrs of service]/26
15 = Basic + DA for 15 days of each month. i.e. out of 26 working days of every month only 15 days B+DA is considered

no. of yrs of service should exceed 5 yrs

26 = 26 working days (30-4 sundays)
another way of coming to this 26 is:
48 hrs per week * 52 weeks per year=2496 hrs per year
2496 hrs per year / 12 months = 208 hrs per month
208 hrs per month / 8 hrs per day =26 working days per month

i hope this should clear ur doubt, open to any suggestions pls.
Posted 12th November 2009 From India, Calcutta
Hi All,

I came to know that Madras HC had given one judgement in relation to calculation of service period under Gratuity, according to which approx. 4yrs. 8 months service make the employee eligible for Gratuity payment, or this is based on the No. of working days.

If any one has this case, kindly share that for reference.

Thanks n regards
Posted 12th November 2009 From India, New Delhi
Dear Swati,

Plz find attached herewith the copy of this Judgement as per your requirement.

With Regards,
Sr. Associate
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)
Office: 311, AKD Tower, Sector 14, Gurgaon
(M) 09810405361 (O) 0124-4264449
Posted 12th November 2009 From India, Delhi
Attached Files
Shared By Cite.Community Member "R.N.Khola" For Public Download
File Type: pdf Gratuity - Madras HC judg[1]..pdf (1.55 MB, 67 views)
Dear Madhuu sir,

I'm working with Constructions Company, our salary statement includes Basic, HRA, CONV, SPL ALLOW,MEDI ALLOW but the formula is for Gratutiy =BASIC + DA (Last Pay drawn) X 15 /26 X No. OF YEARS WORKS, how we have to calculate and we are calculating for 31 days kindly give me suggestions........
Posted 25th August 2010 From India, Hyderabad
The qualifying salary for Gratuity means the Basic Salary and Dearness allowance only. The Act has specifically said that the same should be divided by 26 and not by 30/31 and , therefore, you have to use 26 as the divisor.


Posted 27th August 2010 From India, Kannur

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