Gratuity Deductions: Where Does the Money Go If You Leave Before 5 Years?

Hi, according to the rule, one can avail gratuity after attaining 5 years of service in a company. I would like to know what happens to the amount that has been deducted as gratuity if a person leaves the company within 5 years. Does the amount go to the government or to the company itself.

Regards,
Arun

Hey,

Gratuity is not a part of salary or wage but by virtue of the Payment of Gratuity Act, it is a legal requirement for all employers to pay it. There is no deduction for gratuity. It is an extra financial burden on the employer. Employers typically discuss the amount of gratuity payable when negotiating the salary, which comes into play when an employee completes five years of continuous service with the employer.

R.K.P

Hi Arun,

The gratuity amount is not deducted from your monthly salary. After you complete 4.5 years of continuous service with an establishment, the company is liable to pay the amount toward your gratuity. The amount is paid after you resign from the job and is included in the full and final settlement.

The calculation is as follows: Basic + DA * 15/26.

Regards,
Binoy

Hi Binoy,

A little change to the formula you have given for the calculation of gratuity:

Last drawn basic + DA * 15/26 * number of years of service

Also, to reply to Arun's query (correct me if I am wrong!):

The amount of gratuity is usually added to the CTC of an employee by an employer. This is calculated based on the basic salary of the employee, and as the basic salary increases, the gratuity amount also increases. The gratuity amount is typically set aside either in a Gratuity Trust maintained by the company, with LIC (usually done), or with a private company providing the same service.

If an employee leaves the organization before completing 5 years of tenure, they are not eligible for the gratuity amount, and the amount is retained in the fund—I don't think the amount goes to the government or the organization.

Hope this little knowledge I have shared helps you! :)

Chanchal

Dear Sender,

Mr. Binoy's statement about service terms is incorrect. The gratuity is a statutory payment for security after service. For eligibility, a minimum of 5 years of service needs to be rendered during employment. This will be paid only after leaving the employment and will be included in the final dues.

The gratuity calculation formula is (Basic + DA) / 26 * 15 * number of years of service rendered. Some companies add it to the CTC package.

There will be no deduction or recovery from the gratuity payment. This will be borne by the Employer only.

Regards,
Bhushan Dahanukar

Hey Yazmeen,

In the formula for gratuity, 15 depicts "half a month" and 26 depicts the "number of working days in a month (excluding the 4 Sundays)."

Hope this answers your query!

Chanchal

Guys,

There was a mistake in my calculation for the eligibility to attain the gratuity amount. Normally, a person is eligible for gratuity after 4.8 years. The figure 5 is a round-off period that is shown in the books. The employee is eligible to receive his/her gratuity only after leaving the job.

Regards,
Binoy Babu 😉

Dear friends,

The Payment of Gratuity Act 1972, section 4, states that an employee should be paid gratuity upon the termination of their employment after they have rendered continuous service for not less than five years, on their superannuation, or on their retirement or resignation; or on their death or disablement due to accident or disease.

In this connection, the following points should be kept in mind:

a) Completion of continuous service of five years is not necessary when the termination of service is due to the death or disablement of the employee. Therefore, 4.8 years of service are not eligible for receiving gratuity.

Regards,
moses_alphonse@yahoo.com
09442637009

Dear Arun,

Gratuity is not deducted every month from the employer. It is provided to the Gratuity Fund created by the trust (either managed by the Trust directly or by institutions like LIC). The Gratuity will be provided from the first year of confirmed service. However, an employee will be eligible for Gratuity payments only when they complete 5 years of service.

Regards,
Balaji

Hi everyone,

Sorry to sound lame, but it'd really help to have someone draw out a sample calculation for Gratuity. Say I have a Last Drawn Basic of 10,000 and am planning to leave the job after completing 5 years. What ballpark estimate of Gratuity can I expect?

P.S.: It looks like a cool site with tons of people I would like to meet up with and know more from. I wonder why I couldn't find it before.

Hi Chanchal,

What happens to the money deposited into a Gratuity Fund, whether it is maintained by LIC or a private company? In case an employee leaves in less than 5 years, who gets the money deposited against his name?

Regards,
Sree

Hi Everyone,

I have just completed my 5 years in a partnership firm. Please help me get the answers to the following points:

1. Am I entitled to get gratuity?
2. If I leave the job now, should I get the gratuity, and how long will it take?
3. If the partner refuses to give the gratuity, then what should I do? Please instruct me.

Thanks in advance,
Raj