How to Calculate Gratuity for a 160,000 Rupees Salary in Delhi After 5 Years?

Dear Seniors, If an employee is taking 160,000 rupees per month, what would be his gratuity amount after 5 years as per the Delhi State regulations? Additionally, if we maintain his basic salary at 25,000 as required by the Minimum Wages Act in Delhi, should the calculation be based on 25,000 or 50% of 160,000? Please advise on the correct approach.

Thanks

Hi, Gratuity can be calculated based on the last drawn Basic (+ DA if applicable). The formula for calculating gratuity is: Last drawn Basic x 15/26 x number of years completed. This calculation helps in determining the gratuity amount an employee is entitled to receive upon completion of their service.

Gratuity and Basic Salary Considerations

Gratuity is based on basic salary and Dearness Allowance (DA). You are keeping DA at 15% of the gross salary. This is why the government is implementing a minimum basic salary in the new wage code and other labor laws.

At the moment, there is nothing wrong with your current working setup, although I believe it may make your company less attractive to prospective employees.

Gratuity Calculation Based on Basic + DA

If the Basic + DA = 25,000/-

After completion of 5 years of service - 25,000 x 15 x 5 / 26 = 72,115/-

Understanding Gratuity Calculation Under the Payment of Gratuity Act

Under the Payment of Gratuity Act, there is no mention of Basic Salary. The wages/salary as per the Act shall include all emoluments that are payable to an employee as per the contract of employment. The only exclusions are: Overtime allowance, Bonus, House Rent Allowance, Commission, and other allowances.

Components Excluded from Gratuity Computation

A perusal of the above will make it clear that allowances which are not fixed and quantified in the appointment order/contract of employment are the components that can be excluded from the computation of gratuity. Of these, HRA is the amount which will often be confused, and legally, HRA is payable only to those who reside in leased accommodation. It is payable only under the condition that the spouse is not in receipt of the same. If this component is available to all employees, it will be termed as an allowance universally paid to all employees, and then it will be part of the salary for the purpose of computation of gratuity.

For more details, please follow the link below:

https://madhu-t-k.blogspot.com/2024/...lary-some.html

The above observations are made by me based on my own experience. You can have a different opinion. In an establishment where an old system of payroll management exists, the wages should mean only Basic wage and Dearness allowance. But in the CTC era, it should require a change. I don't think that if a person takes one day LOP (leave without Pay), his HRA will be paid in full, which establishes that HRA is part of remuneration only. In order to be called an allowance excluded from the scope of wages, it should be a 'compensatory' allowance, an allowance to compensate a cost.

Out of Rs. 1,60,000/- per month, as per the new Code on Wages, you cannot keep the basic salary as Rs. 25,000/-. The new definition reads as follows in the Code on Wages:

Definition of Wages

Sec. 2 (y): “Wages”:

Wages mean all remuneration capable of being expressed in terms of money payable to a person employed and include (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.

There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).

Clause 2(y): “Wages”

“Wages means all remuneration capable of being expressed in terms of money payable to a person employed and includes (First Part):
(i) Basic Pay
(ii) Dearness Allowance and
(iii) Retaining Allowance, if any.

There are exclusions to the term wages such as bonus, HRA, value of house accommodation, light, water, medical attendance, bonus, incentive, employer contribution to PF and Pension Fund, amount payable through an award or settlement passed by any Court, any commission payable, etc. (Second Part).

If the excluded amount (Clauses “a” to “i”) exceeds 50% of the total remuneration payable (second part), then the amount which exceeds one half (or any other percentage as fixed by the Appropriate Govt) of the said total remuneration shall be deemed as Wages (first part) under the new Code. Hence, it is very difficult for organizations to keep the basic wages very low in the coming years as it is being done at present. More than that, my personal opinion is organizations should not worry much about paying gratuity because if someone is working for 5 years, it is a good thing in the present scenario and they should definitely be rewarded for their long service.

Complexities in the New Wage Code

The basic wages under the new code are just a joke. If an employee works overtime or earns a commission in the last month, their gratuity would also increase! We already had definitions of wages that were more or less the same under all the Acts, and now the Code, which aimed to simplify the laws, has made it more complicated. It has not directly stated that 50% of the total remuneration will be the basic wage but includes a lot of allowances and a final calculation as well. Even the employer's contribution to PF is considered an allowance under the new system. In an undertaking where the PF is contributed without a ceiling of Rs 15,000, determining the monthly contributions to PF becomes very difficult.