How Does an Employee Get Their Gratuity After 5 Years? Steps and Who Pays It

I have a question. If an employee has completed his 5 years in a software company and now wants to resign, how does he get his gratuity amount? I mean whether the amount is paid by the company or the government. Also, what is the procedure that the employee should follow? Please explain the proper steps for receiving the gratuity amount.

Dear Friend,

Gratuity, this word, came from gratitude. In other words, an employer pays an employee for his loyalty of service towards the company, and it will be paid at the time of resignation or retirement. If an employee completes 5 years of continuous service, he is eligible for this payment. As per statutory concern, it is mandatory for companies to pay after meeting the eligible criteria under the Gratuity Act 1972.

It is calculated based on the last drawn Basic pay / 26 days X 15 Days X Number of years worked. Gratuity is exempted U/s 10 as per the Income Tax Act up to Rs. 10,00,000/-. Earlier, it was Rs. 3,50,000/-.

For the Gratuity calculation, the gratuity calculation formula is:

1. Basic/26 x 15 days x number of years of service
OR
2. BASIC + DA (Last Pay drawn) x 15 / 26 x No. OF YEARS WORKS

Formula for calculating Gratuity payment is as follows:

Last Basic * 15 * No. of years of Service / 26

Dear,

Gratuity is statutory, and the organization is responsible for managing its funds to allocate gratuity. There are several organizations that handle this, and you can also consider LIC. In case you have not yet done so, if any of your employees have completed 5 years of service, you are liable to pay them the gratuity amount from the company's expenses.

The formula mentioned by our friend, Mr. Tellikapalli, for calculating Gratuity is correct.

Vasant Nair

The formula for calculating Gratuity mentioned by our friend Mr. Telikepalli is correct. Only, it is Basic + DA that is taken into account for calculation purposes.

Vasant Nair

Hi, there are two ways of getting Gratuity.

1. If the company has a Gratuity Trust, then LIC of India or another institution (with whom the company holds the Gratuity account) will transfer the money to the company's Gratuity Trust, and the trust will pay the money to employees who have completed 5 years of service with the company.

2. The company will send a request to the institution to issue a cheque in your name, which will be delivered to you.

In both scenarios, the time gap will be more than 90 days from the date of the last workday. Gratuity will only be paid upon exiting the company. Employees do not need to take action in this regard, only inform your company whether you have received Gratuity from your previous employer, etc., for taxation purposes.

Dear Friends,

Don't get confused, well all friends have given the correct calculation, but the method of explaining, in other words, teaching can be a little challenging for new learners. Out of all, Mr. Ganesh Chavan has provided the correct way of calculating gratuity. In other words, I am simply amending the formula by adding the brackets.

The formula for calculating gratuity payment is as follows:

1. (Basic/26) * 15 days * number of years of service
For Example: (10,000/26) * 15 * 5 = 384.6154 * 15 * 5 = 28,846.15
Total Gratuity Amount is 28,846.00

OR

2. (BASIC + DA/26) * 15 Days * No. OF YEARS WORKS
For Example: (10,000 + 1000/26) * 15 * 5 = 423.0769 * 15 * 5 = 31,730.77
Total Gratuity Amount is 31,731.00

Gratuity is calculated only on the last Basic or Basic + DA as the company has the pay structure.

Thanks,
With Warm Regards,
Nandan Singh Negi
09718189207

Gratuity Eligibility:

Completion of 4 years and 8 months (240 days) is the eligibility to avail gratuity. The calculation of gratuity after eligibility is as follows: completion of years will be calculated once complete of 6 months every year. For example, if the Date of Joining is 01.01.1994 and the Date of Leaving is 31.06.2000, the calculation of years should round off to 6 years and 6 months. However, if the Date of Joining is 01.01.1994 and the Date of Leaving is 01.07.2000, the calculation of years should be rounded off to 7 years.

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' wage based on the rate of wages last drawn by the employee concerned. Gratuity shall be payable to an employee on his superannuation, or on his retirement or resignation, or on his death or disablement due to accident or disease, or on his termination of his employment after he has rendered continuous service for not less than five years.

Rubalingam.D Asst. Manager - HR

Can anybody tell me how the company manages the fund for gratuity? Can the company deposit the amount monthly like EPF? Is there any form for the employee to claim the gratuity?

Please let me know if you need further assistance.

Dear Shri Washington ji,

The gratuity due at the rate given in the above posts will have to be paid by your company to the outgoing employee. The government is in no way concerned with the payment of gratuity as it is concerned in the case of PF, Deposit-linked insurance benefits, pension, etc. Some companies make arrangements with insurance companies beforehand for the payment of gratuity to their employees in the case of retirement, resignation, death, etc. If there is no such arrangement made by your company, you will have to pay the gratuity to the resigning employee within 30 days from the date of receipt of his application. For delayed payment, simple interest is payable. The government comes into the picture only if the ex-employee files a complaint about non-receipt of gratuity against his former employer. The Labour Commissioner (State or Central as the case may be) is the competent authority to deal with such complaints.

Shyam Agrawal

Gratuity should be paid by the company once the employee completes five years of continuous service. The calculation of gratuity is: Last drawn Basic + DA / 26 * 15 * number of years of service.

For example, if the calculation is 5000 (B+DA)/26*15*5 (number of years) = 14423/-.

Regards,
Poornima

Dear friend,

Gratuity is being paid in recognition of one's services to an employer. If one loses employment due to misconduct, the gratuity is not payable to him/her. The cause of removal should be punishment on account of misconduct and not retrenchment.

Dear Member,

First, go through Section 4(6) of the Payment of Gratuity Act, 1972, and then make a decision accordingly in this matter.

Regards,
R.N.Khola