Gratuity Calculation in Private Companies: What Salary Components Are Considered?

Hi All,

I would like to know what categories or components are included in the salary structure for Gratuity Calculation. Let me elaborate on my question:

Previous discussions on Citehr.com mention that for Gratuity calculation, (Basic + DA) is taken into account. I want to know what will be used for the calculation in companies, mostly private companies, that do not have DA in their salary structure.

It is basic plus DA, and as you have rightly asked, most companies do not pay DA. Thus, it will be basic only for the calculation of Gratuity.

If an employee fails to complete 5 years by a few months, meaning they work for 4 years and 10 months in a company and have to resign, can they request for Gratuity?

It is true that most private companies do not include the Dearness Allowance (DA) as part of the salary. In that case, we have to calculate the Gratuity payable based on the basic salary only.

Regards,
Sunil Kaura.

My understanding is that while calculating gratuity, Basic Salary + Spl. Allowance + Dearness Allowance (which is Gross Salary) should be included in the calculation. If Dearness Allowance is not provided by the establishment to its employees, then basic Dearness Allowance should be calculated as per the Shop & Commercial Establishment Act; otherwise, it should be calculated as per the standing Government Order. Can someone please help me with this so I can move forward?

Dear Sir,

For calculating gratuity payable under the Payment of Gratuity Act, all emoluments earned by the employee while on duty, including dearness allowance but excluding bonus, commission, house rent allowance, overtime wages, and other allowances, have to be taken into account. If the government has notified minimum wages for the employment in which the employee was employed, then the wages reckoned for calculating gratuity cannot be less than the minimum wages notified by the government. The wage rate payable to the employee will be the wage rate payable to him on his last working day with the employer.

What is the standard procedure for gratuity calculation? Is the special allowance applicable in calculating gratuity? Kindly confirm or inform me.

Thank you.

With regards,
T Nagaraju

Gratuity Calculation Formula

Gratuity is calculated as follows:

Gratuity = (Last basic + D.A) / 26 * 15 * Number of years served.

Example Calculation

- Basic = 3500
- D.A = 2000
- Number of years of service = 7 years

Then, the gratuity is calculated as:

Gratuity = (3500 + 2000) / 26 * 15 * 7

Gratuity = 22211.54

Regards,
PKS

Thank you for your guidance. I just have a small query:

Gratuity Calculation Query

We have considered gratuity as Basic + DA. Since we do not have DA as a part of the salary, only conveyance (Rs 800) and Educational allowance (Rs 200), we have calculated it only on the basis of the Basic salary. Can you please guide if this is correct?

Court Summons Issue

Also, the ex-employee has sent a court summons to us. Can you please cite a court order where only basic was used since there was no DA so I can present it before the court if required?

Please guide - [Email Removed For Privacy Reasons]

Regards,
Pranav

For computing the gratuity payable, the basic and dearness allowance paid to the employee have to be reckoned. Please read the definition of the term "wages" as defined in the Payment of Gratuity Act. According to this definition, only basic and dearness allowance are to be reckoned for calculating the gratuity payable. Please show this definition to the Authority who has summoned you.

Regards,
V. HARIKRISHNAN

My service is 20 years. I am providing the details and what is my gratuity amount. In my concern, there is no DA. BASIC 9240, TA 2310, HRA 3850, SPL INCENTIVE 2900; - TOTALING 18,300/-

Sir, kindly provide my gratuity details for me.

Gratuity Calculation During Notice Period

If there has been an increase in salary during the notice period, what should be the basic used to calculate the gratuity?

Resignation date: 14-10-2014
Notice period: 2 months
Last working date: 14-12-2014

I did not receive the salary slip for December 2015, which had an increased basic effective from 01 December 2015. The calculation for the gratuity was done using the November 2015 salary details. The updated basic was reflected only in the Full and Final Settlement (FnF).

So the question is, should the basic salary be considered as per the last salary slip of November 2014 (with lower basic) or the FnF (which includes the December salary and FnF amounts)?

In private limited companies where there is no Dearness Allowance, only the Basic salary is used for the purpose of gratuity calculations.

Actually, there are only three components in the monthly salary package comprising of consolidated salary, HRA, and special allowance. In this circumstance, whether special allowance (in the absence of DA) constitutes basic salary for the purpose of the calculation of gratuity under the Payment of Gratuity Act 1972.

@Panchsen Obviously, only the basic salary will be considered. This is why private companies structure their salary in such a way that the basic component is kept very low, while special allowances make up the bulk of the total salary.