Understanding Gratuity Calculation: How Is It Determined When an Employee Is Terminated?

Gratuity Calculation Upon Employee Termination

In the event of an employee's termination by the company, the gratuity amount is typically calculated based on the number of years the employee has completed in service. The gratuity calculation formula usually involves multiplying the employee's last drawn salary by the number of years of service and a factor set by the company or as per the applicable laws in the respective jurisdiction.

It is essential for both employers and employees to be aware of the gratuity calculation method to ensure a fair and accurate amount is provided to the employee upon termination.

I came to know that it is calculated the following way:

Last drawn salary * 26/26 * Number of years of service

Thank you!

If you have completed 5 years of continuous service with 240 physical presence days in each year, then your last drawn basic salary plus DA (Cola) will be calculated as 15 days' salary out of 26 days, multiplied by the number of years worked.

Gratuity Eligibility and Calculation

Termination, resignation, or retirement does not affect gratuity eligibility. If the employee has completed 5 years of service as per the Act, they are to be paid the last drawn basic salary, DA, FDA, VDA divided by 26, multiplied by 15, and then by the number of years of service.