Understanding Gratuity: Can You Break Down DA and the 15 in the Formula for Me?

Can someone explain what DA means and the 15 in the gratuity formula? Please, I need a detailed breakdown of every variable in the formula.

Understanding DA and Gratuity Calculation

DA stands for Dearness Allowance, which is a component of the statutory salary. By statutory salary, I mean salary or wages as defined in various Labour Enactments and not the present-day CTC.

Gratuity is calculated at the rate of 15 days' salary (meaning basic salary + DA, if any) for every completed year of service. That is the significance of 15 in the formula. Now, a daily rate of wage is determined by dividing the monthly salary by 26 days. If in the completed service there is a fraction of a year exceeding six months, that shall be taken as one year. The maximum gratuity as per the Payment of Gratuity Act is Rs 10 lakhs.

Regards,
Madhu.T.K

No, the Payment of Gratuity Act is not meant for government employees who have a different system of computing gratuity. As already pointed out, the amount of gratuity will be based on the salary of the employee at the time of leaving. The amount of gratuity will be 15 days' salary for every one year of service.

Fifteen days means the average salary for 15 days calculated by dividing the monthly salary by 26 days. One month is taken as 26 days for the calculation of gratuity since that calculation gives more benefit to employees rather than 30.

That means an employee leaving 7 years after joining will get around 3.5 months' salary as gratuity at half a month's salary for each year. But for the calculation of this half-month salary, instead of 30 days as the days in the month, 26 is taken, leaving 4 off days generally available in a month.

Regards,
Madhu.T.K

I understood your explanation about gratuity. But, in order for everyone to make it clear, would you be so kind as to show us the "formula" for calculating gratuity? I mean the standard formula.

Thank you very much.

Cheers!

Samantha

Standard Formula for Calculating Gratuity

The standard formula for calculating gratuity is:

15/26 x (Last Basic Drawn + DA, if any) x Number of Years of Service, wherein the employees must complete 5 years of continuous service.

Regards,
Videet

As per the Gratuity Act, a person who serves continuously for more than 5 years is entitled to receive half a month's salary for every completed year of service. Therefore, the calculation would be as follows: half month's salary equals 15 days.

Calculation Formula

The calculation formula is: last drawn salary x 15/26 x number of years of service from the date of joining.

I hope the above explanation is clear.

Regards, JM Raju

Gratuity Calculation

As per the Act, at the time of leaving: Basic + D.A * 15 * years of service (not less than 5) / 26.

Maximum amount: Rs 10 lakhs.

Regards

You can calculate the gratuity using this formula: Last Drawn BASIC + DA / 26 * 15 * number of years in continuous service. Anyone is entitled to gratuity after 5 years of service. If there is one day after six months, it should be counted as a full year. For example, if someone has completed 4 years and six months of service, they are entitled to gratuity. 15 days are mandatory as per the law, but it depends on the company's policy. The company can pay more than 15 days' salary in a year, such as 20 days, 30 days, or 90 days. Only Basic and DA will be treated as salary.

I worked in a public school for 8 years and 4 months. In the letter of contract, gratuity is not mentioned. I wrote a letter to my employer requesting him to give me gratuity, but he is not responding to my letters. I would like to know:

(a) Am I entitled to get gratuity?
(b) What should be the amount if my basic salary + DA was Rs 20,000 per month?
(c) What should I do if the employer doesn't give me gratuity?
(d) Is there any penalty for the employer if he doesn't give me gratuity?

Regards,
Amir H. Khan

Understanding Dearness Allowance (DA)

Dearness Allowance (DA) is a part of the salary that is based on the cost of living of the place where you live. Each town or city is classified based on criteria such as infrastructure, population, etc., on which the DA is calculated.

Details of 15 Days of Gratuity

Gratuity received under the Payment of Gratuity Act, 1971, is exempt to the extent that it does not exceed 15 days' salary for every completed year of service calculated on the last drawn salary, subject to a maximum limit.

Regards

The above-mentioned formula is okay. We can also use this formula:

[Ba + DA] / 26 * 15 days * number of years of service (minimum 5 years completion. After 5 years, 5.6 years should be considered as 6 years).

Regards,
Shivakumar

Hi Madhu.t.k, thank you very much for your explanation. I would like to know if there are different criteria for the calculation of gratuity for private and public sector employees?

No, it applies to all establishments covered by the Payment of Gratuity Act.

Regards,
Madhu.T.K