Confused About Gratuity Calculation in India: When and How Should We Pay It?

Hello All Seniors,

I have a confusion in my organization (IT - org.) where one of our employees has been working with us for the last 6 years. The Gratuity Act states:

GRATUITY CALCULATION India

Employee Gratuity is calculated by the following formula:

(Basic + D.A) x 15 / 26 x No. of years in service*

*Minimum service required is Five Years

Now, I am getting confused related to the following questions:
1) When are we supposed to give him the Gratuity benefit?
2) In our salary structure, we do not provide any kind of D.A. So, how are we supposed to calculate it?
3) The formula mentioned above states - No. of years in service*: :: which means a minimum of 5 years, but how do we consider - 5 years of service or 6 years of service?

Please let me know. Waiting for your valuable reply.

With Regards,
Ravi

Hi Ravi,

The replies to your queries are:

1. You can give him the gratuity benefit at the time of his resignation or retirement.
2. If there is no dearness allowance (D.A.) in the salary structure, then you can give it based on the basic salary only.
3. The number of years of service means the total number of years the employee has served in the organization. The eligibility criteria are 5 years. Therefore, consider 6 years or the total number of years at the time of his leaving.

I hope you are clear now.

Thanks

Dear Ravi,

Gratuity is given to an employee who has served for a continuous five years and above, and at the time of resignation, superannuation, death, or disability (not necessarily five years for death and disability).

If there is no DA provided by the company, only the basic component can be taken for gratuity calculation.

Five years is the minimum criteria for an employee to become eligible for gratuity, and you should take the number of years five and above for calculation, for every completed year of service or part thereof in excess of six months.

Thank you, Kalpana and Shreekanth.P.R, for your valuable thoughts.

Mr. Shreekanth.P.R, if an employee has completed 4 years and 11 months (almost reaching 5 years) of continuous service at one organization and then unfortunately passes away, becomes disabled (physically or mentally), or decides to resign due to salary or lack of personal growth, would this act and calculation be applicable to him/her?

With regards,
Ravi Kulkarni

As per your query below, if an employee completes 4 years and 11 months, and in the last 11 months, the employee must be present for 240 days, then he/she is eligible for Gratuity. Hope it's clear.

Regards,
Ram

Hi Ravi,

If an employee has completed 4 years and 11 months (just near to completing 5 years of non-stop service) at one organization and accidentally dies or becomes disabled (physically or mentally), in this case, they are eligible for gratuity. In the case of death and disability, the number of years in service does not matter for eligibility.

If an employee has completed 4 years and 11 months and resigns due to salary and personal growth reasons. In this case, as stated by Mr. Ram, if the employee completes 4 years and 11 months and is present for 240 days in the last 11 months, they are eligible for gratuity.

Hope you are clear now.

Thanks,
Kalpna

Dear All,

Let me make one thing clear here - the condition of minimum qualified service of 5 years is applicable only if the employee resigns from his/her job. In the case of death - whether natural or accidental, whether on the company premises or outside, there is no condition of a minimum period. Even if the death takes place within one year of service, the kith and kin are eligible to get gratuity, and that at a higher rate than normal. Please refer to the Payment of Gratuity Act, 1972, for confirmation. If necessary, I will produce the relevant provision in the next post.

Thanks and regards,