Gratuity Calculation Confusion: How Do You Figure It Out on a Rs. 55,000 Salary?

Hi,

I am V. Visali from Vijayawada. I have a doubt regarding the calculation of Gratuity on a consolidated salary amount. The consolidated salary amount is Rs. 55,000.

Thank you.

Dear Visali,

When the last-drawn salary is consolidated, gratuity has to be calculated on the basis of the entire salary.

Do you mean to say the salary slip does not have any breakup of the salary? There is only one amount? No details of the components?

Gratuity is calculated on the Basic Salary, as mentioned by Mr. Banerjee, there would be a salary breakup e.g. Basic, HRA, Conveyance, Other Allowances. Kindly check and revert so as to give an appropriate view by the forum members. If there is no breakup in Salary, then the entire consolidated Salary will be treated as basic salary, and Gratuity has to be worked accordingly, as per my view.

If the basic salary is $55,000, then gratuity is calculated based on this amount. The formula for gratuity is as follows: ($55,000 / 26 * 15 * 6) / (basic salary / total days in a month without Sunday * fifteen days of a month * total year) = $190,385.

To Shri Umakanthan53,

Thank you for clarifying that when the last-drawn salary is consolidated, gratuity has to be calculated on the basis of the entire salary. Are there any case laws of high courts or the Supreme Court or rules to cite when claiming Gratuity on consolidated salary? Or should one appeal to the Labour Commissioner?

Sorry, I didn't come across any judgment either by any High Court or the Supreme Court so far on this aspect. Therefore, what is required is a perspicacious analysis of the term "wages" as defined under Section 2(s) of the Payment of Gratuity Act, 1972, which is as follows:

"Sec.2(s) 'wages' means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages, and any other allowance."

Understanding the Definition of Wages

For the sake of exact understanding, the above definition can be divided into three parts, namely: (a) the defining part, (b) the inclusive part, and (c) the exclusive part.

In part (a), wages mean all emoluments earned by the employee while on duty or on leave in accordance with the terms and conditions of employment, and such emoluments must be paid or payable in cash. The legal meaning of the term "emoluments" is a return arising from office or employment, usually in the form of compensation or perquisites. Since gratuity is a terminal benefit based on service already rendered, the necessity for introducing the inclusion of something and exclusion of some other things to the emoluments becomes imperative. Hence, the statute introduces the inclusive and exclusive parts.

Inclusive and Exclusive Parts of Wages

In part (b), wages include dearness allowance.

In part (c), wages exclude other payments in the form of cash, namely, bonus, commission, house rent allowance, overtime wages, and other allowances. In salary and wage administration, as basic wages or salary is fixed and invariable, allowances are granted in addition for specific purposes in connection with the work of the employees as well as its duration. That is the reasoning for the inclusion of D.A and the exclusion of the specific other items from the emoluments paid or payable to an employed person.

As you are well aware, a consolidated wage or salary is fixed throughout the tenure of employment. Therefore, it has to be taken as a whole for the purpose of computation of gratuity on the legal or normal termination of employment of such employees.

Hope you are convinced.

Regards,
[username]