Understanding Gratuity: How Do Employers Calculate Your Contributions?

Friends,

Could you please explain how gratuity contributions are calculated by the employer?

Regards,
Shijit.

Dear Shijit,

There is no contribution for Gratuity from the employee, and the employer has to pay for his service in the company. Please find below the calculation of Gratuity:

Basic + DA x 15 days salary
--------------------------------- x No. of years of service
26

Regards,
Santhosh

Dear Shrijit,

Santhosh has provided the formula for the withdrawal of Gratuity when the employee leaves the organization after 5 or more years of service. If you are inquiring about how gratuity is calculated to be taken into consideration while calculating an employee's CTC amount, then:

Gratuity = 4.81% of Basic

Regards,
Chanchal

Dear All,

In case the employee has worked only for 5 years and 3 months, how many years do you take into consideration for calculating Gratuity and what is the procedure for calculation under these circumstances?

Thanks,
AshaVinay

Hi,

Some companies calculate the service period of separating employees in the following ways:
1) After the full completion of 5 years.
2) After completing 4 years and 8 months but less than 5 years, it is considered as a flat 5 years.
3) Completion of 5 years and 3 months is taken as only 5 years. Any period less than 6 months is rounded to the nearest whole number beyond five years.

The Gratuity Act has accepted 240 days of service in the 5th year as eligibility for full gratuity.

- Coverage for all employees irrespective of designation, status, or salary.
- Temporary employees are also included; there is no distinction made between temporary and permanent workmen.

Regards,
Chandru

Dear Shijit,

Hi, the gratuity calculation is: basic + DA + VDA / 26 * 15 * number of years (not less than 5 years).

Dear Shitij,

Gratuity calculation is:

( frac{15}{26} times text{current basic} times text{years} )

For example:

( frac{15}{26} times 4800 times 6 = 16615 )

This formula is used in Dainik Bhaskar.