How Do We Accurately Calculate Gratuity for an Employee Who Just Resigned?

Dear Seniors, I hope this email finds you well. I want to seek clarification regarding the gratuity calculation for an employee who recently resigned from our company. The details are as follows:

Employee Details

Employee’s Name: Mr. A.K. Singh
Total Tenure of Service: 5 years and 3 months
Last Drawn Basic Salary: INR 8,257 per month

Could you please guide us on calculating the gratuity amount based on the provided information? We want to ensure that we handle this matter accurately.

Thank you for your assistance.

Hi, The calculation for Gratuity will be: Last drawn salary (Basic + DA) * 15/26 * number of years of service. Rs. 8257 * 15/26 * 5 = Rs. 23818.

For five years and 3 months of service, the employee is entitled to five years' gratuity since a fraction of a year more than 6 months can be rounded to the next number, i.e., 6 years. The gratuity is equal to 15 days' salary for every completed year of service. The average salary for one day is calculated by dividing the monthly wages by 26. Therefore, for an employee whose last drawn salary is Rs 8257, the gratuity will be Rs 23,818 calculated as: 8257/26 * 15 (days) * 5 (years).

Salary Calculation for Gratuity

Salary for the purpose of calculating gratuity means the total salary excluding overtime wages, commission, house rent allowance, and similar compensative allowances (allowances paid to compensate certain costs like house rent, travel cost to reach the office and back home, meals allowance, education allowance, telephone allowance, etc.), bonus, employer's contribution towards EPF, etc., and other similar allowances. Allowances like dearness allowances, special allowances paid to all workers in general without considering any special skill, and allowances as per settlement or contract of employment should be included in the gratuity qualifying salary.

Concerns About Salary Amount

In your case, the salary mentioned is Rs 8257. I don't think there will be any employee who has worked for five years who would get just Rs 8257 as a salary. Moreover, the minimum wages notified by the government should be more than this. This is called statutory wages. There are court directions that gratuity should be paid at least on the statutory wages fixed by the government.