Is My Gratuity Calculation Right for an Employee Resigning After 5 Years?

Gratuity Calculation Query

Please tell me if my company's one employee is resigning. He worked for 5 years and 2 months. I am calculating his gratuity using the following formula: last month's payment divided by 26 days, multiplied by 15 days, multiplied by 5 years. Is this correct or incorrect? I am considering his service as 5 years, even though he worked for 5 years and 2 months. Is this condition correct or incorrect? Also, please advise me on which records I should maintain.

Regards,

Gratuity Calculation Under the Payment of Gratuity Act, 1972

We are required to consider the rate of wages last drawn as defined in section 2(s) of the Payment of Gratuity Act, 1972. All other points are correct. You are requested to provide information regarding the disbursement of the gratuity amount to an employee to the Controlling Authority in your area. For further details, please refer to section 4 of this Act.

Regarding Gratuity Calculation for Resigning Employee

Please tell me, if an employee in my company resigns after working for 5 years and 2 months, how should I calculate his gratuity? I have calculated it using the following formula: last month's payment divided by 26 days, multiplied by 15 days, multiplied by 5 years. Is this correct? Should I consider his service as 5 years only, or should I include the additional 2 months of work? Is this approach correct, and what records should I maintain?

Thank you.

Regards,
R.N. Khola

Your method of calculation is correct, provided The Payment of Gratuity Act is applicable to your organization. For the calculation, some organizations will take the last month's salary, while others will consider the average of the last twelve months. Please check this with your organization.

Regards,
Abbas.P.S

Please inform me about giving intimation regarding the disbursement of the gratuity amount to an employee to the Controlling Authority in your area. Who are the individuals responsible to the Controlling Authority? Are they the company Director or any government inspector?

An employer, as defined under section 2(f), is responsible for sending notices/intimations to the Controlling Authority of the area. The employer is also required to specify the name of the officer with the designation to receive notices under this Act on his behalf.

Regards,
R.N.Khola

You are right, and your formula for the calculation of gratuity is also correct. As per the Payment of Gratuity Act 1972, we have to consider more than six months of service in one year. For example, if anyone worked for 5 years and 7 months, it will be deemed as 6 years, and 5 years and 6 months will be deemed as 5 years.

I hope your doubt is now cleared.

Thanks & Regards,

Sunil Sharma

Find more information at: https://www.citehr.com/303251-about-...#ixzz18HIdjIKd

Understanding Salary Components for Gratuity Calculation

Salary under the Payment of Gratuity Act means only Basic and DA/VDA. I hope you have considered these components correctly, and the remaining calculation is accurate. Please remember that you have to pay the gratuity within 15 days from the receipt of the prescribed form under the Gratuity Act from the employee requesting you to pay the gratuity.

Regards,
D. Phani Kumar
Sr. Manager - P&A
Zuari Cement Ltd.

Your calculations are absolutely "RIGHT," not "WRIGHT." (This must be an inadvertent spelling error). Yes, as Mr. Khola has rightly stated, wages for calculation purposes will include only Basic Pay & DA.

Best Wishes,

Vasant Nair

Gratuity

1. Eligibility: Only on completion of 5 years of service (provided the incumbent shall have 240 days of attendance in a calendar year).

2. Formula: Basic + DA / 26 (wages last drawn) X 15 X number of years of service (@ 4.86% on Basic + DA per month - for CTC calculation).

3. Maximum Gratuity Payable: Rs. 10.00 lakhs.

4. Computation of Gratuity Amount:
After arriving at completed years of service, if a fraction of a year comes:
a. Excess of six months will be taken as one more year, i.e., completed years of service + one year.
b. Less than six months, over and above months (01 - 06 months) shall be ignored and shall be limited to completed years of service only.
c. In the case of a piece-rated employee, daily wages shall be computed based on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment.

5. In Case of Death of an Employee: The minimum 5 years of continuous service is not necessary, and the employee is eligible for gratuity for the period he worked in the organization.

If an employee has completed 4 years and 7 months of service, is he eligible for gratuity?

With regards,
SANJAY

No, he is not eligible for gratuity in accordance with the provisions of the Payment of Gratuity Act, 1972.

Regards,
R.N.Khola

Dear Mr. D. Phani Kumar (Sr. Manager- P&A, Zuari Cement Ltd.), with reference to your input on "about gratuity," I would like to bring to your notice that the employer is liable to pay the gratuity within 30 days from the receipt of Form 'I' (application for payment of gratuity) from the concerned employee and not within 15 days as mentioned by you.

Clarification on Gratuity Payment Timeline

Section 8 (1) (i) is very clear on the time frame for the payment of gratuity.

[Sec 8. (1) Within fifteen days of the receipt of an application (Form 'I') under rule 7 for payment of gratuity, the employer shall— (i) if the claim is found admissible on verification, issue a notice in Form 'L' to the applicant employee, nominee, or legal heir, as the case may be, specifying the amount of gratuity payable and fixing a date, not being later than the thirtieth day after the date of receipt of the application, for payment thereof.]

Please make the required corrections in your input as such input will create confusion among readers.

Regards,
Kamal Prasoon Sinha
17-12-2010

In the case presented by you, the employee is eligible for Gratuity for 5 years only, as the part service completed by him beyond 5 years is not in excess of 6 months for rounding it off to one year. The gratuity payable to him is monthly wages last drawn by him divided by 26, multiplied by 15 and 5. Wages, as defined under the Gratuity Act, means all emoluments earned by an employee while on duty or leave in accordance with the terms & conditions of his employment and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages, and any other allowance.

Best wishes,

Narasimhaswamy
Hyderabad

Dear Mr. Abbasiti (Abbas P.S),

With reference to your input on "about gratuity," I would like to say that the calculation of gratuity by taking the average of the last twelve months' salary is not the right way to calculate gratuity as per the Gratuity Act. I do not know why there is confusion on this when "wages last drawn by the employee" is clearly mentioned in all forms (I, J, K) related to the Payment of Gratuity Act 1972. Even FORM 'L', which is a notice for payment of gratuity by the employer to the employee, has a clause "Wages last drawn" under the Brief Statement of Calculation.

Regards,
Kamal Prasoon Sinha
17-12-2010

Correct Formula for Gratuity Calculation

The correct formula is as follows:

Basic + DA / 26 days × 15 days in a year × number of completed years.