Understanding Gratuity: When Is It Paid and What Does It Mean for Employees?

Dear All,

Can anybody tell me the meaning of gratuity and why and when it is paid?

Regards,
Minal

Dear Minal,

Please go through the Payment of Gratuity Act, 1972, and the Rules made thereunder for your query.

With Regards,
R.N.Khola

Dear All,

Can anybody tell me the meaning of gratuity and why and when it is paid?

Regards,
Minal

Gratuity will be applicable for employees who have completed 5 years of continuous service and above in the same organization.

Formula of Gratuity:
Last drawn salary (Basic + DA) * 15 * No. of years of Service / 26
Max. Limit: 3,50,000

Regards,
Prasad S. Pandit

Gratuity is a gratuitous payment made by the employer to an employee for the services rendered by the latter for the former. Therefore, it is a reward for the long service rendered by the employee. In other words, it is paid when an employee leaves the company after having served the company for a quite long time.

In order to give shape to what constitutes 'long service' and to give a definite idea as to what shall be the amount payable, Kerala State enacted the Payment of Gratuity Act for the first time, which was followed by West Bengal and later on by the present central Act of 1972.

As per the Act, gratuity is payable at the time of an employee leaving service after completing at least five years of service. The amount of gratuity is calculated based on the salary of the employee at the time of exit, and it is at the rate of fifteen days' salary for every completed year of service.

Regards,
Madhu.T.K

Dear Minal,

According to The Payment of Gratuity Act 1972, every organization must pay gratuity amount to employees who have completed 5 years of service with 240 days in each year. This amount will be paid at the time of superannuation or resignation of an employee.

The above-mentioned condition is not applicable in death cases. In death cases, 5 years of service is not mandatory.

Recently, the Government of India has increased the existing ceiling from 3,50,000 to 10,00,000. The gratuity calculation is: Wage last drawn (Basic+DA)/26*15*No. of years of service.

Venki

Dear Venki,

If the enhancement has been made under the P G Act of 1972, then please provide us with the notification of this amendment. What is the date of applicability?

With Regards,

R.N. Khola

Gratuity is a scheme to motivate people to serve for longer durations with the same employer. Anybody who has served an organization for more than 5 years is eligible for gratuity. A portion of the last drawn salary would be multiplied by the number of years of service and paid out to you when you leave an organization after years of service.