Gratuity Calculation: How Do You Figure It Out for Less Than a Year of Service?

Hi,

I would like to know about the calculation of gratuity. What is the formula for calculating the gratuity if an employee completed less than one year with the organization?

Hi,

For availing gratuity, an employee should have completed a minimum of 5 years of continuous service in an organization. For employees with less than 5 years of service, no employer is liable to provide gratuity.

Moreover, gratuity means an ex-gratia amount, i.e., an amount given in gratitude from the employer to an employee for the good service rendered to the company.

Raj

Hi,

For availing Gratuity, an employee should have completed a minimum of 5 years of continuous service in an organization. For employees with less than 5 years of service, no employer is liable to provide Gratuity.

Moreover, Gratuity means an ex gratia amount, i.e., an amount given in gratitude from the employer to any employee for the good service rendered to the company.

Raj

The formula for the calculation of the gratuity amount is:
(((Basic + D.A.) * 15) / 26) * No. of years of service.

Kindly revert if the formula is not clear!!

Cheers!
Shringarika.

Payment of Gratuity Act, 1972

Applicability

1. Every factory (as defined in Factories Act), mine, oilfield, plantation, port, and railway.

2. Every shop or establishment to which Shops & Establishment Act of a State applies in which 10 or more persons are employed at any time during the year end.

3. Any establishment employing 10 or more persons as may be notified by the Central Government.

4. Once the Act applies, it continues to apply even if employment strength falls below 10.

Eligibility

1. Any person employed on wages/salary.

2. At the time of retirement or resignation or on superannuation, an employee should have rendered continuous service of not less than five years.

3. In the case of death or disablement, the gratuity is payable, even if he has not completed 5 years of service.

Benefits

1. The quantum of gratuity is to be computed at the rate of 15 days' wages (7 days' wages in the case of seasonal establishments) based on the rate of wages last drawn by the employee concerned for every completed year of service or a part thereof exceeding 6 months.

2. The total amount of gratuity payable shall not exceed the prescribed limit.

3. In cases where a higher benefit of gratuity is available under any gratuity scheme of the company, the employee will be entitled to the higher benefit.

Calculation of Gratuity

1. Gratuity = (Monthly Salary x 15 days x No. of yrs. of service) / 26

2. The maximum gratuity payable under the Act is Rs. 3,50,000/- (w.e.f. 24-9-1997).

Penal Provisions

Nonpayment of gratuity payable under the Act is punishable with imprisonment up to 2 years (minimum 6 months) and/or a fine up to Rs. 20,000/-. Other contraventions/offenses attract imprisonment up to 1 year and/or a fine up to Rs. 10,000.

Hi Rajesh,

That's a very good presentation of the answer. It'll be really helpful for anyone who is a layman on this topic.

Cheers,
Shringarika

Hi,

Gratuity will be applicable for employees who have completed 5 years of continuous service and above in the same organization. The formula for calculating gratuity is ((Basic + DA) * 15/26) * No. of years of service, which includes completion of 6 months of service also.

Regards, M. Helen

Hi Rajesh,

Kindly help me in clarifying my doubts on the above-stated formula.

According to the formula stated above, the gratuity of an employee earning 15k per month, say after 5 years, would be Rs. 1,125,000 (15,000 * 15 * 5 = 1,125,000). However, he would be paid just 3.5 lakhs as gratuity as the maximum gratuity payable under the Act is Rs. 3,50,000/- (w.e.f. 24-9-1997).

Kindly clarify.

Regards,
Tandeep

How the SL/CL/EL leaves are calculated and how to allocate them to workers in the company.

Can we provide SC/CL combined for a 5-day leave on a regular basis?

In any organization where Saturdays and Sundays are off, the formula for calculating gratuity remains the same.

Azeem

Dear Azeem,

The Act does not provide a separate formula for the calculation of gratuity amounts for units with a five-day working week.

Regards,

R.N. Khola
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)

I want to know my organization driver working for 13 years with a basic salary of AED 1000/-, how can I calculate the gratuity amount? How much is the total?

[QUOTE=Helen Raj;324071]
Hi,

Gratuity will be applicable for employees who have completed 5 years of continuous service and above in the same organization. The formula for calculating gratuity is ((Basic + DA)*15/26)*No. of years of service, which includes completion of 6 months of service also.

Regards,
M. Helen
[What does 26 mean for?]

Hi,

I would like to know about the calculation of gratuity. What is the formula for calculating the gratuity if an employee completed 7 years with the organization? If the monthly salary is 35,000 and the basic is 17,500, then how much amount of gratuity is payable?

Dear Friends,

Now the Gratuity limit is increased to Rs.10,00,000/-. Previously, it was Rs.3,50,000/-.

Dear Sachin,

Service period starts from the date of joining.

Regards,
R.N.Khola

Dear All,

Please let me know when the period (5 years) starts: either at the date of joining or at the date of confirmation. I am not clear about this.

Regards,
Sachin
sachin.a@upt.in

Hi, my query is that we have three conditions under eligibility:

Eligibility:

1. Any person employed on wages/salary.
2. At the time of retirement, resignation, or on superannuation, an employee should have rendered continuous service of not less than five years.
3. In case of death or disablement, the gratuity is payable, even if he has not completed five years of service.

In our organization, we have mentioned that on retirement or death, gratuity is applicable, but I have always tried to make management understand that even on resignation after five years of service, gratuity is applicable. Am I right in saying so or not?

Hi,

Gratuity will be applicable for an employee who has completed 5 years of continuous service, i.e., in a calendar year, he has to work for 240 days. Only then will he be eligible for gratuity.

Dear Member,

Which provision of the Payment of Gratuity Act, 1972 states that we should consider 240 days of working in a calendar year?

Regards,
R N KHOLA

Hi, Sir,

I have one doubt regarding the following formula for calculating Gratuity:

((Basic + DA) * 15/26) *

Here, "Basic" refers to the current basic salary or the average basic salary considering the total work experience.

Thank you.

Dear member,

We are to consider the rate of the last drawn basic wages while calculating gratuity [sec. 4(2)].

Regards,
R.N. Khola

Hi Sir,

I have one doubt in the following formula for calculating gratuity: ((Basic + DA) * 15/26) * Basic means current basic or average basic of experience.

Gratuity Calculation Simplified

It is very simple.

Basic + DA * 15 (days) / 26 * Number of years (not less than 5 years)

Important Notes:

1. 7 days in case of a seasonal establishment.
2. In case of death and permanent disablement, the employer has to pay the gratuity even before 5 years.
3. Under the Gratuity Act 1972, the maximum gratuity amount payable is now Rs. 10,00,000.

The Payment of Gratuity Act, 1972 does not have any provision relating to any contribution from any corner. The employer is liable to pay the gratuity amount as and when payable.

"Our organization does not have this provision for contributions. Does that mean the employer is liable to pay the entire amount from their side only?"

Regards,
R.N.Khola

If a person has completed 27 years, 5 months, and 24 days of service, with a basic salary plus dearness allowance (DA) of 6000, how do you calculate gratuity? Should you calculate based on only 27 years, or should you also consider the additional 5 months and 24 days in the calculation?

Kindly help me in clarifying my doubts on the above-stated formula. According to the formula stated above, the gratuity of an employee earning 15k per month, say after 5 years, would be Rs. 1,125,000 (15,000 * 15 * 5 = 1,125,000). However, he would be paid just 3.5 lacs as gratuity since the maximum gratuity payable under the Act is Rs. 3,50,000/- (w.e.f. 24-9-1997).

Kindly clarify.

Regards, Tandeep

Hi Tandeep, you can find the formula that states (Basic + D.A.) * 15 * 5 / 26, which clearly states that 15,000 * 15 * 5 / 26 = 43,270. Further clarification is needed, 1,125,000 / 26 needs to be done, and the sum amount will be the gratuity.

Regards, Anthony Pinto.

Gratuity Calculation Explanation

Your calculation for the above question should be as follows:

- (15000 * 15 / 26) * 5 years of service
- (225000 / 26) * 5 years of service
- (8654) * 5 years of service
- = Rupees 43,270.

Therefore, the actual gratuity payment to the employee will be Rs 43,270.

If the gratuity amount exceeds Rs 350,000, then the employee will be entitled to a maximum of Rs 350,000 only.

I hope I have made it clear.

Regards,
Mahesh
Executive (HR & Admin)