Understanding Gratuity: How Do I Calculate It for a Senior Employee?

Hi,

One of my senior employees has come back to us for gratuity, and I really don't have an idea about this. Can anybody explain to me in detail about the laws and how to calculate the gratuity? Please help me with this.

Thanks in advance,
Riji

Dear Riji,

Eligibility:
* An employee should have completed 5 years of service in the organization.
* If served one day less, the employee is not eligible for gratuity.
* Over and above 5 years, less than six months is treated as zero, and more than six months is treated as 1 year.

Gratuity calculation:
(Basic + DA + Personal pay) x 15 days
--------------------------------------------- x No. of years served
26 working days

Hope this is simple and clear.

Regards,
Bharathi

Hi Riji,

To add to that, it's a regular practice of the management to set aside a part of money on a monthly basis. If that has been done, the management has to part with a chunk, but it has to be paid if the employee has been working for over five years.

Regards, Sneha

Hi Jaya, Riji,

I wanted to add that the gratuity period is calculated over 5 years for every completed year of service. This means that even if the employee has worked for 6 years and 11 months, they will receive gratuity for 6 years, not seven years.

Rolly

Hi,

There is no doubt that completion of five years of service is compulsory for availing gratuity. Please go through the Madras HC Judgment, and below, I am providing the abstract of the same.

"Madras High Court has held that an employee rendering continuous service for a period of 240 days in the 5th year will be deemed to have continued in service for one year as stipulated by sec. 2-A of the Payment of Gratuity Act. In this case, the employee has put in his service for 10 months and 18 days in the 5th year subsequent to the 4th year. The Madras High Court has held that it will be treated as continuous five years of service, and as such, he will be entitled to gratuity."

For further details, please go through the March 2004 Labour Law Reporter.

A.R. Ariraj

Hi,

One of the conditions for availing gratuity is 5 years of continuous service, not 5 completed years of service. If you refer to the definition of continuous service, it means completing 240 days of work in a year, including holidays. This essentially means that if someone has worked for 240 days in their 5th year, they may well apply to the management to claim gratuity.

Regards,
Subrato

If an employee completes 5 years and 6 months, the service year should be calculated as 6 years. Moreover, I believe that in Gratuity calculation, there is no need to include personal pay. Only Basic + DA are sufficient.

Thanks,
G Sakthi

Dear Rolly,

After five years of service, six months and above will be treated as one year for calculating gratuity.

Regards,
SHAN

Dear Riji,

This is a very important question you are faced with. You have to follow the steps below:

1. When the employee joins the organization, please fill out his gratuity nomination form, which G.L.O. will always ask for.
2. An employee should have completed continuous service of 5 years in the organization.
3. Over and above 5 years, less than six months is treated as zero, and more than six months is treated as 1 year.

Gratuity calculation:
(Basic + DA + Personal pay) x 15 days
--------------------------------------------- x Number of years served
26 working days

Please feel free to ask any queries if you have any.

With Regards,
Avinash K.

Hi,

Form F is filled for Gratuity nomination, and Form I is for its withdrawal. Also, to add, Gratuity is calculated based on the last basic salary + dearness allowance drawn. If there is no dearness allowance, then it is calculated only on the basic salary.

Regards,
Umesh Chaudhary
umesh.chaudhary@ril.com

Hi,

I have no clue what gratuity is and why it should be given. Is it something like PF, a statutory compliance? I would request a full detail on the subject. Please enlighten me.

Regards, Anjali

My query is, let's say an employee has served 5 years and 2 months. Suppose that in any year while serving, he did not work 240 days. He was a habitual absentee, and due to that, in any calendar year, he did not perform 240 days during 5.2 years of his total service period.

In that case, is he entitled to get gratuity? Please justify it.

Thanks and regards,
Purshottam

Dear Ariraj,

My query is, let's say an employee has served 5 years and 2 months. Suppose that in any year while serving, he did not work 240 days. He was a habitual absentee, and due to that, in any calendar year, he did not perform 240 days during 5.2 years of his total service period.

In that case, is he entitled to get gratuity? Please justify it.

Thanks and regards,
Purshottam

Hi Purshottam,

Please go through the Payment of Gratuity Act of 1972 and see Section 2A (Continuous Service). There you will find a clear solution for your query. Since you are familiar with the situation, the act provides a way to calculate gratuity for different scenarios. It would be beneficial to review the act as it will help you gain clarity.

Thanks,
A.R. Ariraj

Hi,

Good morning!

Can the management make a decision to withhold gratuity from an employee who has completed 5 years of service due to misconduct or bad behavior?

Regards,
Kamal

Hi,

Yes, the employer has the right to stop the employee's gratuity. Gratuity is nothing but a gift to the employee from the employer for his honest and diligent work for more than five years. However, you need to consider that it was a case of misconduct, the employee was found guilty, and the decision of the management is not biased.

Warm regards,
Umesh Chaudhary
New Delhi
welcomeumesh@yahoo.com

Hello everyone,

I am Sougat. My query is, if a private limited company has 22 working days in a month, how do we calculate gratuity? Should the calculation be based on 22 days or 26 days?

Warm regards,
Sougat Das
sougatdas07@gmail.com

Is there a ceiling for the amount of gratuity payable? Is some portion tax-free and another taxable? I would appreciate clarification.