Understanding Gratuity Contributions: Why Are 8.33% and 4.81% Used?

Can anyone explain the logic behind 8.33% and 4.81% in contribution towards the gratuity fund?

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Hi, thank you for your message.

The percentages mentioned are standard rates for calculating gratuity contributions in some regions. The 8.33% represents a portion of the employee's basic salary, while the 4.81% may be related to additional factors such as length of service or company policy. The specific breakdown can vary depending on the organization and local regulations. It's important for employees to understand how these percentages are determined to ensure transparency and accuracy in gratuity calculations.

The formula for the calculation of gratuity under the Payment of Gratuity Act is:
Salary x 15/26 x number of years of service.

If you apply the formula to a salary of Rs.1000 and calculate the gratuity, the per month percentage would work out to 4.807%, which is rounded off to two digits, i.e., 4.81% per month.

Regards