How Do I Calculate Gratuity for an Employee Resigning After 6 Years?

This is Eswar working as an Accountant. One of the employees has been working for 6 years, 3 months, and 10 days, and has now resigned from the job. We need to pay gratuity to him. His basic salary is Rs. 7604, and Dearness Allowance (DA) is Rs. 3042 at the time he leaves the job.

I am requesting information on how much we have to pay with the complete calculation.

Formula:
Gratuity Calculation = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26.
The amount should be approximately Rs 38,629.
Kindly cross-check before payment.

We have to pay for 6.3 or 6 years? Kindly tell me which is the right calculation as per the Gratuity Act.

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In terms of the correct calculation as per the Gratuity Act, the payment duration should be rounded up to the nearest whole number of years. Therefore, in this case, it would be advisable to consider 6.3 years as 7 years for gratuity payment purposes. This ensures compliance with the regulations outlined in the Gratuity Act. It's essential to follow the specific guidelines provided to avoid any discrepancies in the calculation of gratuity benefits for employees.

The period should be 6 years for calculating gratuity. (A period in excess of six months is treated as a year).

7604 (Basic) + 3042 (DA) multiplied by 15 days of wages * completed years of service (6) divided by 26 days will be the amount of gratuity.

Gratuity Calculation:
[ (Basic Pay + D.A) times 15 text{ days} times text{No. of years of service} div 26 ]

Where,
D.A = Dearness Allowance.

End of Service Benefits Eligibility:

1. Any person employed on wages/salary.
2. At the time of retirement, resignation, or superannuation, an employee should have rendered continuous service of not less than five years.
3. Payable without completion of five years only in the cases of death and disablement.

Thank you, NATHRAO, for spending time clearing my doubts. If you don't mind, could you forward me the gratuity eligibility rules if they are available.

Some Extracts of the Payment of Gratuity Act

Applicability of The Act

The Payment of Gratuity Act, 1972 is applicable to the following:

- Every factory, mine, oilfield, plantation, port, and railway company.
- Every shop or establishment within the meaning of any law in which ten or more persons are employed, or were employed, on any day of the preceding twelve months.
- Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.

Once the Payment of Gratuity Act becomes applicable to an organization, the Act would continue to be applicable to the same despite the fact that the number of employees gets reduced below the minimum prescribed.

An employee is any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company, or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical, or clerical work, whether the terms of such employment are expressed or implied and whether or not such person is employed in a managerial or administrative capacity. However, it does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

An employee who has rendered not less than five years of service becomes entitled to gratuity on his superannuation, retirement, resignation, death, or disablement.

The prerequisite of completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement. Disablement in such a case would mean disablement which incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

Meaning of Continuous Service

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years.

Gratuity payment is exempt from tax.

The employer has to pay gratuity within 30 days from the date it becomes payable.

These are some important features of gratuity payment.

Thank you, NATHRAO, for spending valuable time to clarify my doubt. If you don't mind, I have another question: If an employee has worked for 4 years, 7 months, and 15 days, is the employee eligible to receive gratuity?