Confused About Gratuity Calculation? What Does the '26' in the Formula Mean?

Dear all,

I want to ask about gratuity. Yesterday, I saw an article in which the formula for gratuity was this: (Monthly rate of wage last drawn * 15/26 * Years of service). But before this, I heard the formula for gratuity was (last wage rate * 15 * years of service). First, I want to ask, what is the meaning of 26? Is it the days of the month or anything else? Please brief as I am in confusion.

Thanks & Regards,
Raj

Last monthly salary is the rate of (basic + DA). 26 means 26 actual working days in a month and not 30. 15 implies half of this salary. The number of years means years completed (6 months or more to be counted as one year and less than 6 months to be omitted).

Dear Raj,

The quantum of Gratuity is payable at 15 days' wages based on the rate of wages last drawn by the employee concerned for every completed year of service or part thereof in excess of six months. Here, the term wages means basic wage plus dearness allowance.

So, gratuity will be calculated as (Basic + DA) / 26 * 15 * Number of completed years of service.

We divided the last drawn monthly wages by 26 to get the per day rate of wages. The figure 26 comes from the total days in a month minus the weekly off(s) of the month. It is a standard figure taken for calculating the daily wage of an employee. In Uttar Pradesh, it is clearly described in the G.O. of Minimum Wage that to get the daily wage, we should divide the monthly rate by 26.

It is clearly stated in the Payment of Gratuity Act, 1972 (see Section 4(2) explanation) that in the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.

This explanation is only for monthly rated employees.

Therefore, it is a standard figure that we follow to determine the daily rate of wage. I hope this clears your doubts.

Regards,

Anuj

Anuj,

The interpretation is right.

I have something to share with you. In most IT companies, the gratuity funds are managed by LIC or some third party. These fund managers also follow a 26-day working day contrast to the 22 working days calendar months of IT companies. They wish to stick to the 26 days as per the Gratuity Act.

Best regards,
Vishwanath