Actually we are calculating gratuity for basic@4.81%. Is that correct means that 4.81% means what and why it is 4.81%. Is there any legal acts regarding gratuity calculations?
From India, Bengaluru
Mr. Aravindh Thamaraiselvan

Please go through the Payment of Gratuity Act 1972, The Act is 49 years old.
An Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental

From India, Madras
Dear Friend,
as per the Payment of Gratuity Act 1972 , 4 years & 240 days regular service is mandatory. If an employee served an Establishment for 4 yrs & 240 days S/He can claim the gratuity .
Calculation of gratuity to the eligible employee of an organisation / establishment is as follows:-

Basic Salary or wage/26*15*no of completed year of service

%age you have mentioned comes to 4.81% of the basic salary/wages per month.

From India, Gurgaon
Dear Colleague,

Rightly said and viewed by our Colleagues. Kindly have a reading on the below points in addition to it:

The Act which is governing the payment of Gratuity is Payment of Gratuity Act 1972. In the Act no where the % is mentioned and nowhere 4,81 % is mentioned. The Act is very clear that it says," For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned" This is as per Section 4 of the Act. As far as Wages is concerned it is defined as below as reproduced under section 2(s). Kindly have a reading.

Initially in the past several years ago there was no CTC concept. We used to workout gratuity only based on the calculation of 15 days wages for every completed year for the eligible employees. Later when the Industry adopted and moved to COST TO COMPANY concept every cost was converted to % and in 100% what is the contribution under each bucket like PF, ESI, LEAVE WAGES, GRATUITY and so on. Thus the 15 days of wages is equal to 4.81% appx and it is indicated in the CTC Sheet. When actual disbursement of gratuity is settled we need to follow the calculation of 15 days wages for every completed year of service. Hope this clarifies.

Kindly have a reading on the provisions of Payment of Gratuity Act 1972 which is a simple and short Act.

2(s) "wages" means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which arc paid or arc payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

Section: 4 Payment of gratuity Act 1972 .
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution,
as may be prescribed, until such minor attains majority.]

Explanation. : For the purposes of this section, disablement means such
disablement as incapacitates an employee for the work which he, was
capable of performing before the accident or disease resulting in such
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned

All the Best and God Bless,
Doctor Siva Global HR
Tamil Nadu

From India, Chennai
As mentioned by other learned members that to consider gratuity as part of CTC , it is essential to find some % relationship ( for gratuity it is 4.81% of Basic and DA per month ) . The calculation of gratuity is Last drawn salary ( Basic & DA ) / 26 * 15 * years of completed service. In the calculation two items are variable ( Last drawn salary and years of completed service ) and two items are fixed which is 26 & 15. The ratio 15/26 is 0.577 which is per year factor and 0.577/12 * 100 = 4.81% on monthly basis.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi

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