How Do I Calculate Gratuity with My Salary Components? Seeking Advice on Basic + DA Formula

Dear Team,

I joined an enterprise firm in January 2014. The salary slip is included below. Kindly let us know the calculation of gratuity, as the formula states basic + DA.

Salary Components

BASIC + BASIC II + HRA + CONVEYANCE + SPL. ALLW.

Usha

Hi, In your case, you can consider the entire basic salary (Basic + Basic II) for gratuity calculation purposes. I'm not sure what Basic II entails, but it could be something similar to a special Basic I, which should also be taken into account.

There is a rule that gratuity should be calculated only on basic wages and dearness allowance. If allowances like special allowance are a component of the salary paid to all the employees in the establishment, they will also be considered for gratuity calculation. The Act defines the term wages as total emoluments with the exclusion of commission, overtime wages, HRA, bonus, and similar allowances. The exclusion part is not exhaustive but should be similar to those mentioned.

Hi Ushsniaha, I presume the basic II represents special pay considered to be part of Basic, common in government and PSUs, mostly carved out from the FDA/VDA emerging (merging part of DA) out of wage settlement. If yes, then this basic II can account for gratuity computation. So, the combination of basic + DA / 26 x 15 x the number of qualifying years. (15 days' salary for every year of qualifying service).

Dear Usha,

Gratuity is calculated using the formula: Gratuity = (Basic + DA) × 15 × Years of Service / 26.

Only Basic and DA are included; HRA, Conveyance, or Special Allowance are excluded. Kindly share your Basic + DA and years of service for an accurate calculation. https://basketballstars-game.io

Under which section of the Act is it stated that only basic wages and DA will be considered for the calculation of gratuity? Please share it with me. Also, please share where basic wages are defined in the Act.

Thank you.

The interpretation of 'Wages' continues to be debated time and again. For better clarity, the extract of the Act may be noted:

Section: 2 Definitions

In this Act, unless the context otherwise requires:

(a) "appropriate Government" means -

(q) "retirement" means termination of the service of an employee otherwise than on superannuation;

(r) "superannuation," in relation to an employee, means the attainment by the employee of such age as is fixed in the contract or conditions of service at the age on the attainment of which the employee shall vacate the employment;

(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.

It's observed that questions arise regarding many components of emoluments as they are not common and identical across many sectors. Generally known are Basic and DA, whereas differences arise regarding various allowances and other benefits. While Sec. 8(s) clearly states exclusions, such as bonus, commission, HRA, OT, and any other allowance, it is clear that 'any other allowance' is excluded. However, disputes and differences are never-ending. Any contentious components can only be clarified by court cases. As such, it's not appropriate to pass judgment regarding what is to be included and what is to be excluded.

For example, in the case of Anglo French Textiles Ltd. Pondicherry Vs. Labour Court-Madras HC (22.7.1980) regarding 'incentive wages' paid forms part of 'Wages' for gratuity computation. There are many such cases dealing with these components.