Hi, I am Jaydip, Can anyone let me explain the logic behind the gratuity calculation formula?? Why it’s taking 26 days in this formula ?? Gratuity = (Basic+DA/26*15*No. of years of service)
From India, Ahmedabad
Acknowledge(0)
Amend(0)
From India, Ahmedabad
Acknowledge(0)Amend(0)
If you can scroll down the right side of your computer screen and click on the first discussions, you will get the answer.
Precisely speaking, the formula enlightened by you is correct, and Figure '26' indicates the number of working days in a month.
From India, Aizawl
Acknowledge(0)Amend(0)
699Precisely speaking, the formula enlightened by you is correct, and Figure '26' indicates the number of working days in a month.
From India, Aizawl
Acknowledge(0)Amend(0)
Hi,
26 days is the maximum number of working days in a month. That is the significance of 26 in the formula. Since gratuity is calculated at the rate of 15 days' wages for every year of service, you need to multiply the daily wages or one day's salary by 15.
From India, Madras
Acknowledge(0)Amend(0)
26 days is the maximum number of working days in a month. That is the significance of 26 in the formula. Since gratuity is calculated at the rate of 15 days' wages for every year of service, you need to multiply the daily wages or one day's salary by 15.
From India, Madras
Acknowledge(0)Amend(0)
Dear Jaideep,
Everyone who goes through the Payment of Gratuity Act, 1972 for the first time, particularly the method of calculation described under section 4(2) of the Act, would invariably encounter the doubt you have expressed. However, this is a question of law already well settled by the Supreme Court of India and several High Courts.
Even though the term 'gratuity' conspicuously escapes a definition under the Act, by the very scheme of the Act, it is well recognized as a statutory terminal benefit to be conferred on the exiting employee by the employer based on a certain minimum length of blemishless service under the same employer and his last drawn wages.
The exiting employee's last drawn wages may be calculated and paid by the employer in terms of the time period spent by the employee on the job, such as daily, weekly, fortnightly, and so on, subject to a maximum of one month, which is called "the wage period," indicating the periodicity in which wages are paid as per the preexisting laws relating to payment of wages and fixation of minimum wages or the average earnings during the last three months under the piece-rate scheme of payment of wages. Thus, the most convenient unit of calculation of time spent on work at the maximum would be a month, which is universally considered to comprise of 30 days notwithstanding the difference in the number of different Calendars either based on the rotation of the Moon or the Sun. However, no one can dispute the fact that every employee gets a minimum of 4 weekly holidays in a month. The wages for such weekly holidays are included in the remaining working days, which are considered notionally as 26 days in a month. Therefore, 15 days' wages for every completed year of continuous service set out for the calculation of gratuity under section 4(2) is reasonable as per the explanatory clause to that sub-section.
That's why the Supreme Court categorically held in Shri Digvijay Wollen Mills v. Mahendraprataprai Buch [(1980) 4 SCC 106] that 15 days' wages should be calculated by treating the monthly wages as wages for 26 days and not as wages for 30 days. Affirming the above decision, the Supreme Court in its judgment in Jeevanlal v. Appellate Authority [(1984) 4 SCC 356] held further that the ascertainment of daily wages from monthly should be by dividing the monthly wages by 26 and gratuity should be calculated by multiplying the quotient by 15 and not by 13.
Hope it is clear to you now.
From India, Salem
Acknowledge(0)Amend(0)
Everyone who goes through the Payment of Gratuity Act, 1972 for the first time, particularly the method of calculation described under section 4(2) of the Act, would invariably encounter the doubt you have expressed. However, this is a question of law already well settled by the Supreme Court of India and several High Courts.
Even though the term 'gratuity' conspicuously escapes a definition under the Act, by the very scheme of the Act, it is well recognized as a statutory terminal benefit to be conferred on the exiting employee by the employer based on a certain minimum length of blemishless service under the same employer and his last drawn wages.
The exiting employee's last drawn wages may be calculated and paid by the employer in terms of the time period spent by the employee on the job, such as daily, weekly, fortnightly, and so on, subject to a maximum of one month, which is called "the wage period," indicating the periodicity in which wages are paid as per the preexisting laws relating to payment of wages and fixation of minimum wages or the average earnings during the last three months under the piece-rate scheme of payment of wages. Thus, the most convenient unit of calculation of time spent on work at the maximum would be a month, which is universally considered to comprise of 30 days notwithstanding the difference in the number of different Calendars either based on the rotation of the Moon or the Sun. However, no one can dispute the fact that every employee gets a minimum of 4 weekly holidays in a month. The wages for such weekly holidays are included in the remaining working days, which are considered notionally as 26 days in a month. Therefore, 15 days' wages for every completed year of continuous service set out for the calculation of gratuity under section 4(2) is reasonable as per the explanatory clause to that sub-section.
That's why the Supreme Court categorically held in Shri Digvijay Wollen Mills v. Mahendraprataprai Buch [(1980) 4 SCC 106] that 15 days' wages should be calculated by treating the monthly wages as wages for 26 days and not as wages for 30 days. Affirming the above decision, the Supreme Court in its judgment in Jeevanlal v. Appellate Authority [(1984) 4 SCC 356] held further that the ascertainment of daily wages from monthly should be by dividing the monthly wages by 26 and gratuity should be calculated by multiplying the quotient by 15 and not by 13.
Hope it is clear to you now.
From India, Salem
Acknowledge(0)Amend(0)
Respected Umakanthan.M Means:- Per day wages suppose 500 monthly wages 500x26=13000 Gratuity 13000/26x15=7500 Is it right Sir?
From India, New Delhi
Acknowledge(0)Amend(0)
From India, New Delhi
Acknowledge(0)Amend(0)
Dear Indu,
Conversion of rates of wages:
Daily wages = Monthly wages ÷ 26
Monthly wages = Daily wages × 30
This is the formula set down under the Minimum Wages Rules and the same is to be applied for the purpose of calculating 15 days' wages for gratuity.
From India, Salem
Acknowledge(0)Amend(0)
Conversion of rates of wages:
Daily wages = Monthly wages ÷ 26
Monthly wages = Daily wages × 30
This is the formula set down under the Minimum Wages Rules and the same is to be applied for the purpose of calculating 15 days' wages for gratuity.
From India, Salem
Acknowledge(0)Amend(0)
Respect Umakanthan. M Thanks Sir for detail calculation
From India, New Delhi
Acknowledge(0)Amend(0)
From India, New Delhi
Acknowledge(0)Amend(0)
Dear Indu,
I'd like to make one suggestion here. If the daily wage has already been determined, the calculation is straightforward: 500 x 15 = 7500 x number of years of service = gratuity amount. You do not need to multiply or divide by 26. The divisor 26 is only available to salaried employees who are paid monthly. For your convenience, an example is provided below: If his monthly salary for September is 15000/-, his daily wage rate is 15000/30 = Rs. 500 per day. However, for gratuity purposes, his daily wages will be 15000/26 = 576.92 x 15 x number of years of service.
Regards,
Suresh
From India, Thane
Acknowledge(0)Amend(0)
I'd like to make one suggestion here. If the daily wage has already been determined, the calculation is straightforward: 500 x 15 = 7500 x number of years of service = gratuity amount. You do not need to multiply or divide by 26. The divisor 26 is only available to salaried employees who are paid monthly. For your convenience, an example is provided below: If his monthly salary for September is 15000/-, his daily wage rate is 15000/30 = Rs. 500 per day. However, for gratuity purposes, his daily wages will be 15000/26 = 576.92 x 15 x number of years of service.
Regards,
Suresh
From India, Thane
Acknowledge(0)Amend(0)Engage with peers to discuss and resolve work and business challenges collaboratively. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Register and Log In.
Don't Just Communicate, Explain.pdf