Gratuity Calculation Confusion: What to Include When DA Is Missing from Payslip?

Please advise on the correct amount for the calculation of gratuity. Is it basic plus DA? In the absence of a DA component in the payslip, should any other amount, such as house allowance, special allowance, or conveyance, be considered for calculating gratuity?

It is the basic DA that is to be considered for computing gratuity. All other allowances are excluded. However, please note, if you're paying any allowance like a special allowance linked to the cost of living, that may have to be included.

Regards

Hi, my employer has settled my gratuity based on the basic salary only. There is no heading for DA in my salary slip. Can I take legal action to claim gratuity on special allowance?

Regards,
Arbindsha

Every special allowance paid as a component of salary will not be in the nature of a dearness allowance. In the private sector, a special allowance is paid as any other allowance apart from basic but not as a dearness allowance. Therefore, it may not qualify for calculating gratuity. However, a special allowance paid as part of the minimum wages, notified by the State Government, will be in the nature of a dearness allowance as it is linked to the cost of living index.

Similarly, certain PSU banks pay a special allowance to employees for carrying out specific duties, and it is part of the agreement between unions and the banks to include it for the purpose of computing dearness allowance, HRA, etc., and for retirement benefits like gratuity. I do not think your case falls under any of these scenarios.

Regards,
B. Saikumar
Mumbai

Thank you very much for your valuable comments. They are indeed very helpful. The only thing I would like to add is that this special allowance was given throughout our employment to all employees. Dearness Allowance (DA) was never included in the heading of our pay slip. For example, the breakdown of the pay slip was as follows: basic pay 35k, HRA 15k, special allowance 22k, and others 8k. I am currently holding a senior manager level position.

Best regards,
Arbind

Dear Mr. Arbind, the special allowance in your case should be construed as DA, as 17% of the salary package mentioned by you should be to cover the cost of living, even though there was no mechanism to arrive at this figure as in the case of unionized employees who are enjoying the dearness allowance based on the mechanism of local cost of living/All India consumer price, as the case may be.

The allocation of a major portion of the gross salary in the name of Special Allowance may be to circumvent the definition of salary under the Payment of Gratuity Act 1972, inasmuch as to lessen the employer's financial commitment to gratuity to employees, especially senior executives in management cadre. It is understandable and logically tenable to allocate a reasonable portion (%) of the gross salary into HRA (up to 50%), Conveyance Allowance, City Compensatory Allowance, Dress/Washing Allowance, etc. Bereft of all these allowances, a single component styled as Special Allowance with a considerable percentage of the gross salary is a point of dispute.

The issue regarding Special Allowance as part of salary in addition to Basic Salary has to be taken up with the controlling Authority under the Payment of Gratuity Act 1972 for a final decision. If the Controlling Authority negates your representation, then the issue should be taken to the Appellate Authority. There is strength in your case. The employer cannot interpret the definition of salary solely based on the wording of the Payment of Gratuity Act 1972. In fact, it should be interpreted in the spirit and logical conclusion, and I am sure the Courts can view this social security legislation in a more pragmatic, logical, and analytical manner, giving you bright chances of success. I am not in a position to refer to any judicial pronouncements/case law in this regard.

Let other experts shed light on this matter.