Understanding the Gratuity Act: How Do You Calculate Employee Gratuity and What Are the Limits?

Dear All,

Please let me know about the gratuity act. How do we calculate the gratuity for employees? What are the minimum and maximum gratuity amounts, and what is the formula for calculating gratuity?

Kindly send me the gratuity act to gain a deeper understanding of how gratuity works.

Could anyone provide me with a detailed explanation?

Thanks,
Niru

What is Gratuity?:
‘Gratuity' is a retrial benefit. This act envisages in providing a retirement benefit to the workman who have rendered long and unblemished service to the employer. Gratuity is a reward for long and meritorious service.
Applicability of the Act:
Every factory ,mine,oilfield,plantation ,port,railways,company,shop,establishment or educational institutions employing ten or more employees.
When is Gratuity Payable?
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.
b. On his retirement or resignation.
c. On his death or disablement due to accident or disease.
NOTE: However, the condition of five years of continuous service is not necessary if service is terminated due to death or disablement.
To whom is Gratuity Payable?
Gratuity is normally payable to the employee himself, however in the case of death of the employee it shall be paid to his nominee & nomination has been made to his heirs. Incase the nominee is a minor; share of the minor shall be deposited with the controlling authority who shall invest the same for benefit of the minor, until he/she attains majority.
Amount of Gratuity Payable – Method of Calculation:
In case of non –seasonal establishment:
Gratuity Payable = 15 days wages x No of completed years of service,
In case of seasonal establishment:
Gratuity Payable= 7 days wages x No of seasons for which employed.

Maximum Limit of Gratuity
The government through an ordinance has enhanced the maximum limit of the amount of gratuity payable under the Act is Rs 100,000 to Rs 2,50,000 with effect from 02-04-97.Now at present the maximum limit is 3.5 lacks.

Forfeiture of gratuity:
The gratuity of an employee whose service have been terminated for any Act of willful omission or negligence causing any damage or loss to or destruction of property belonging to the employer, gratuity shall be forfeited to the extent of the damage or loss caused. The right of forfeiture is limited to the extent of damage.
The gratuity payable to an employee shall be wholly forfeited:
1. If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or

2. If the service of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

Thanks[/quote]

Hi Meenu,

Find the attachment. You can find all the details about gratuity in this article.

Thanks,
Sudesna

Hi Karan,

I have a few doubts about gratuity.

1. I am working in a clinical research organization. Do CROs come under the Gratuity Act?

2. For gratuity, can I get any registrations like ESI & PF?

3. What types of forms need to be filled for gratuity?

4. Can I fill and pay the amount for gratuity like ESI & PF?

5. If an employee completes 5 years at the time of relieving, what types of forms does he need to fill and where do I need to submit the forms for withdrawal?

Thank you.

Hi all,

Please find the attached Gratuity Rules.

Maximum limit: 3,50,000/-

Eligibility: Minimum 5 years and every year he had to work 240 days and above.

Calculation: Last drawn Basic + DA * 15 * Number of years of Service / 26

Hope the information will be helpful.

Any comments, please share.

What is the rule in case of long leaves taken during service? For example, if I have worked in an organization from 2002 to 2009, but had taken (approved) leaves for one year for family reasons, will that cause me to lose my eligibility for Gratuity? My employer refuses to pay me Gratuity stating this - can I do something to get it?

Hi Arun,

I am currently employed at a software company. I joined the company on 25th May 2005 and have recently submitted my resignation. My last working day will be 9th April 2010.

I have a query regarding my eligibility for gratuity. I have come across information stating that to qualify for gratuity, an employee must work for a minimum of 4 years and 260 days. Could you please confirm if I meet the criteria for gratuity payment?

I would appreciate a prompt response.

Regards,
Arun

Dear All,

My name is Mukesh, and I have worked in a packaging group. We have paid a yearly premium for gratuity, and now it seems to be too high. I would like to know if gratuity insurance is mandatory or not.

Thank you & regards,
Mukesh

Dear Mukesh,

Please note that the government has not yet applied section 4A of compulsory insurance as no notification has been issued regarding its applicability.

R.N.Khola

I have a few doubts about gratuity.

Gratuity in Clinical Research Organizations

1. I am working in a clinical research organization. Do Clinical Research Organizations (CROs) come under the Gratuity Act?

Gratuity Registration and Forms

2. For gratuity, can I get any registration similar to ESI & PF?
3. For gratuity, what types of forms need to be filled?
4. For gratuity, can I fill and pay the amount like ESI & PF?

Gratuity Withdrawal Process

5. If an employee completes 5 years at the time of relieving, what types of forms does he need to fill, and where do I need to submit the forms for withdrawal?

I have been working with Ltd. Co. for the past 11 years. Our company does not provide gratuity benefits to any person who leaves our organization.

Please advise if I resign, will I be able to claim gratuity or not.

Can anybody help me with whether engineering colleges and medical colleges are covered under gratuity?

Can Employers Withhold Gratuity?

Can the employer decide not to pay gratuity to an employee under certain circumstances? If yes, then under what circumstances?

Employers are typically required to pay gratuity to employees as per labor laws or company policies. However, there may be specific situations where an employer could withhold or not pay gratuity. Such circumstances usually involve misconduct or violation of company rules by the employee. It's important for employers to clearly outline these conditions in their employment contracts or HR policies to avoid any confusion or disputes.

Dear,

The formula for calculating gratuity is: last drawn basic + DA * 15/26 * number of years. To be eligible for gratuity, 5 years of continuous service are required, and in case of 4 years 10 months or 240 days, it can be considered. The maximum gratuity that can be given is up to Rs 350,000/- and exempted. I am hereby attaching some documents regarding this for reference.

Regards,
Vipin8-)

Dear Vipin,

The formula for calculating gratuity is: last drawn basic + DA * 15/26 * number of years. To be eligible for gratuity, 5 years of continuous service are required. In case of 4 years and 10 months or 240 days, it can be considered. The maximum gratuity that can be given is up to Rs. 350,000/- and is exempted. I am hereby attaching some documents regarding this for reference.

Regarding the latest update, the ceiling has been raised to 10 lakh, and a bill has been passed. I believe a gazette has also been issued.

Regards,
Sampath S.
Joint General Secretary, TNSTC Staff Federation, Madurai
94420 36044

Hi Friends,

Let me clarify, as per Section 1.3(b) of the Payment of Gratuity Act, 1972, organizations having 10 or more employees are eligible to pay gratuity. Is there any provision that upon completion of 10 years of commercial operation, an organization is compelled to provide gratuity regardless of having 10 or fewer employees?

Understanding the Payment of Gratuity Act 1972

Under Section 4 of the Payment of Gratuity Act 1972, gratuity shall be payable to an employee upon the termination of their employment after they have rendered continuous service for not less than five years. Termination of employment may result from superannuation, retirement, resignation, death, or disablement due to accident or disease.

As held in the case of Darshan Engineering Works vs. the controlling authority, where an employee continues to work after superannuation, they will be entitled to gratuity for the entire period and not only up to their superannuation.

Explanation of Disablement Under the Act

According to the explanation to Section 4(1), disablement means such disablement as incapacitates an employee from the work they were capable of performing before the accident or disease resulting in such disablement. Under Section 4(4), if an employee continues in their current employment after disablement at reduced wages, the gratuity for the period up to their disablement is to be calculated at the wages they were being paid before disablement. The gratuity for the period after disablement is to be calculated on such reduced wages.

Provisions for Death and Disablement

Under provision 1 to Section 4(1), the requirement of continuous service of five years shall not be necessary if the termination of employment occurred due to death or disablement. In the case of death, the amount of gratuity shall be paid to the nominee. If no nomination was made, gratuity shall be paid to the heir. If the nominee or heir is a minor, then the amount of gratuity shall be submitted to the controlling authority. The minor can access this fund when they attain majority.

See Payment of Gratuity Act, Rules, Forms, Returns & All Other Information for a complete summary of the act.

Hi,

This is Rajeswari, working as an HR Executive for a private concern. I am enclosing the Gratuity calculator with this.

Gratuity Eligibility in Case of Employee Death

I have a question regarding gratuity. If an employee completes one year with the establishment and then, in the 13th month, is on leave and dies:
1. Is he eligible to receive gratuity?
2. If yes, in which judgment is this written?

Gratuity Obligation for Dissolving Companies

Another question for everyone: If an establishment starts with 40 persons and after 4 years the company dissolves, leaving only 9 persons in the 5th year:
1. Is the company obligated to pay gratuity to all employees who completed 5 years?
2. If yes, in which judgment is this written?

Dear Rashmitha,

Please clarify, "after that in leave 13th month he died." I presume the employee died while being in service. Consequent to the deceased employee completing 1 year of service, he is eligible for gratuity.

Reduction in the strength of employees from 40 to 10: Once the act is made applicable, it continues to be applied even though there is a decrease in strength.

Please peruse relevant acts/rules thoroughly. You will find the answers to all your questions.