Gratuity Calculation Confusion: Can Anyone Explain It Clearly for HR?

I am working as an HR in a private company, and I want a clear calculation for gratuity. Please help me to do so.

Thank you.

Gratuity Calculation Formula

For Gratuity Calculation, the below equation is used:

Gratuity = (Last Drawn Basic + DA) x 15 x Nos. of Years / 26

Hope this will help you. Cheers.

Calculation for Gratuity

W x Y x 15/26

where W = Last Wage drawn, i.e., basic + DA

Y = Number of completed years of continuous service (six months or less to be ignored and more than six months to be counted as a full year).

15 = 15 days' salary

26 = Number of working days in a month.

Maximum Limit: Rs. 3.5 lakhs.

Hi, the simple formula, as mentioned by others, is to calculate the current salary by dividing it by 26, then multiplying the result by 15 and the number of years worked. The salary can vary based on the company's policy but should not be less than the minimum wage.

I see all the posts, and all the formulas are correct, but it is noted that an employee who completes 5 years of service will be entitled to gratuity.

Regards,
Sanjay Gupta

Correction on Gratuity Calculation

All the learned followers above have provided their formula for deriving one day's wage by dividing the monthly salary by 26. I would like to make a correction here. The last wage should be calculated by dividing the monthly Basic + DA + any other allowance that is part of the salary/wages of the individual employee (for example, in some organizations, doctors receive Non-Practicing Allowance, i.e., NPA, which is considered part of their Basic for all purposes). Therefore, it should first be determined whether the employee is paid based on 26 days' wages per month or @ 30 days. This variation typically occurs with daily-rated and monthly-rated employees.

Additionally, the limit has been increased to Rs. 10 Lakhs since September 2009.

Formula for Gratuity Calculation

- One day wage last drawn = Total (Basic + DA + any other allowance as mentioned above) / 26 or 30 (depending on the scenario) ----- w

- Period of service = n years

- Gratuity payable for = y days (n years x 15)

- Gratuity amount = w x y limited to Rs. 10 Lakhs.

I hope this makes it easier to calculate.

Regards,
AK Jain