Understanding Gratuity: Who Qualifies and How Do You Calculate It?

Hi all, how do you calculate gratuity and who is eligible for it? Can you explain it?

Regards,
Venkat.

Eligibility for Gratuity under the Indian Gratuity Act

As per the Indian Gratuity Act (Payment of Gratuity Act 1972), an employee should complete a minimum of 5 years in the organization to become eligible for gratuity. The training period of trainees/Apprentices appointed under the certified standing orders/Apprentice Act will not be counted for determining the eligibility period.

Any recent amendments may be checked as I am not working in India currently.

Calculation of Gratuity

The calculation of gratuity is given below: 15 days' salary is to be given as gratuity for every completed year of service. The calculation is as follows:

Gratuity = (Monthly Salary / 26 days) x 15 days x No. of years of service.

More than 6 months is considered as one completed year of service; less than 6 months is ignored. The last drawn salary will comprise your Basic + DA + commission (if it is fixed as a % of sales turnover).

The maximum gratuity payable under the Act is Rs. 10,00,000/-

Regards,
KK

Understanding Gratuity Eligibility and Calculation

Gratuity is a social security benefit that is payable by the employer to an employee who completes five years of continuous service. However, if someone completes 4 years and 240 days in an organization, they should be considered eligible for gratuity. Also, the completion of continuous service of five years is not necessary in case the termination of employment is due to death or disablement. After attaining eligibility, if an employee serves for more than six months, it will be considered as one full year. For example, 5 years, 6 months, and 1 day will be considered as 6 years for gratuity calculation.

Gratuity Calculation

The gratuity is paid at the rate of 15 days' wages (last drawn wages) for every completed year, and to get one day's wages, the monthly salary (Basic + DA) should be divided by 26. For instance, if the last drawn salary (Basic + DA) of employee A is 10,000, and they have served for 7 years and 7 months, then their gratuity will be calculated for 8 years as 10,000 / 26 x 15 x 8 = 46,154.

Regards

If your establishment is covered under the Payment of Gratuity Act, 1972, please go through Section 4 of this Act to understand the eligibility and calculation of the gratuity amount.

Regards,
R.N. Khola

Gratuity is paid to all such employees after their resignation or retirement. In the case of resignation, gratuity is paid to employees who have completed 5 years of service. If Basic + DA is 14,200 and an employee has worked for 7 years, then Gratuity = 14,200 * 15 * 7 / 26 = 57,346.

Best wishes

Gratuity Payment Limit Under the Payment of Gratuity Act, 1972

According to Sec. 4(3) of the Payment of Gratuity Act, 1972, the amount of gratuity payable to an employee shall not exceed ten lakh rupees. However, if the employer so desires, they can give more than this amount.

Regards,
R.N. Khola
(M) [Phone Number Removed For Privacy Reasons]