An Overview for Gratuity Benefits Calculations - CiteHR
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An Overview for Gratuity Benefits Calculations
The Payment of Gratuity (Amendment) Act 2018 provides a Social Security to Employees working in all organizations such as factory, mine, oilfield, port, railways, plantation, shops, establishments or educational institution having 10 or more employees on any day in the preceding 12.
Since an employee sacrifices prime time of his life for the development, prosperity and betterment of his employer, the employer pays his employee gratuity as a graciousness or gift to him, when he no longer serves him. At the time of retirement employee generally has no source of regular income and due to old age- increasing medical expenses and increasing inflation to meet with day to day expenses. So to cope up with all these uncertainties, Gratuity Payment becomes a financial support to meet the necessary expense as a single one-time payment.
The amount of Gratuity payable to an employee on his exit from service, according to “The Payment of Gratuity (Amendment) Act 2018 ”, in force at present, is :-
(Salary of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit)
This is subject to a ceiling limit of 20,00,000/- effective from 29.03.2018.
Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:
(a) On his superannuation
(b) On his resignation
(c) On his death or disablement due to employment injury or disease.
In case of (c) vesting condition of 5 years does not apply.
Gratuity Benefits depends upon last drawn monthly wages and is linked to length of service, normally it goes on increasing from the time when the employee joins service and the time of his exit from service due to annual increase in salary and increasing service period.
Gratuity Calculation, its payment to employee by employers and its funding arrangement (i.e. Setup of Group Gratuity Trust Fund) requires technical and in-depth knowledge of rules/regulations and amendments of “The Payment of Gratuity (Amendment) Act 2018 ”, and hence Consultation Professionals dealing with this subject becomes mandatory for HR/Accounts/Financial Planning Departments of organization.

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