Gratuity Calculation: Last Salary – Basic Pay + Dearness Allowance + Commission on Sales (if any). In this formula, assuming 26 working days in a month, the employee is paid by taking an average of 15 days.
Gratuity Calculation: Gratuity is the amount which is given to the employee by the organization or employer. An employer must have a job with the employee for at least five years. Usually this amount is given when an employee leaves the job or he is removed from the job or he retires. He or his nominee gets the amount of gratuity even in the event of the death of the employee due to any reason or his leaving the job due to accident.
What is the eligibility for gratuity?
According to the rules of the Gratuity Payment Act 1972, the maximum limit of gratuity can be up to Rs 20 lakh. For Gratuity, it is mandatory for the employee to work in the same company for at least 5 years. In the case of a job done for less than this, the employee does not have the eligibility for gratuity. Gratuity is not available even after leaving the job in 4 years 11 months. However, this rule does not apply in case of sudden death of the employee or leaving the job due to accident.
Gratuity payment act 1972?
The ‘Gratuity Payment Act’ was enacted in the year 1972 to protect the interests of the employees.
The law included employees of all organizations working in mining areas, factories, oil fields, forest areas, private companies and ports, where 10 or more employees work.
Gratuity and Provident Fund are completely different.
In gratuity, the entire money is given by the employer. At the same time, 12 percent contribution in the provident fund is also done by the employee.
Which organizations come under the purview of the Act?
Any company, factory, institution where 10 or more employees have worked on any one day in the last 12 months will come under the Gratuity Payment Act. Once under the purview of the Act, the company or institution will have to remain within its purview. Even if the number of employees in the company is less than 10, it will still remain under the purview of the Act.
Gratuity is available in how many days?
The employee can apply for gratuity withdrawal after leaving the job. According to the rules, the payment is made within 30 days from the date of application. If the company does not do so, then it will have to pay interest at the rate of simple interest on the gratuity amount. If the company does not do this, then it will be considered guilty of violation of the Payment of Gratuity Act, 1972, in which it can be punished from 6 months to 2 years.
Gratuity is fixed in two categories
In the Gratuity Payment Act 1972, employees are divided into two categories to determine the formula for the amount of gratuity to be received by the employees. In the first category, those employees come under the purview of this Act, while in the second the employees outside the Act come. Both types of employees working in private and government sectors are covered in these two categories.
Category 1- Employees who come under the purview of Payment of Gratuity Act, 1972.
Category 2- Employees who do not come under the purview of Payment of Gratuity Act, 1972.
Formula to find out the amount of gratuity (for employees covered by the Act)
Last salary x Job duration x15/26
Last Pay- Basic Pay + Dearness Allowance + Commission on Sales (if any). In this formula, assuming 26 working days in a month, the employee is paid by taking an average of 15 days.
Duration of the job – In the last year of the job, more than 6 months will be considered as a complete year, for example, in case of 6 years 8 months job, it will be considered as 7 years.
Example- Suppose someone worked in a company for 6 years 8 months. At the time of leaving the job, his basic salary was Rs 15000 per month. In such a situation, according to the formula, the amount of his gratuity will be worked out like this.
15000x7x15/26 = Rs 60,577
Formula to find the amount of gratuity (for employees not covered by the Act)
Last salary x Job duration x 15/30
Last Pay- Basic Pay + Dearness Allowance + Commission on Sales (if any). In the formula, assuming 30 working days in a month, the employee is paid by taking the average of 15 days.
Duration of employment- Period of not less than 12 months is added to the last year of employment for such employees. For example, if the employee has worked for 6 years 8 months, then it will be considered as 6 years only.
Example- If someone worked in the company for 6 years 8 months. At the time of leaving the job, his basic salary was Rs 15000 per month. It does not come under the purview of the Companies Act, in such a situation, according to the formula, the amount of gratuity will be calculated as follows.
15000x6x15/30 = Rs 45,000 (the person who is not covered under the Act will get Rs 15,577 less than the employee who is covered under the Act)
Calculation of Gratuity in case of death
In such a situation, the gratuity is paid on the basis of the tenure of the job, subject to a maximum of Rs 20 lakh.
| length of employment | rate of gratuity |
| less than a year | double the basic pay |
| More than one year but less than 5 years | six times the basic pay |
| More than 5 years but less than 11 years | 12 times of basic pay |
| More than 11 years but less than 20 years | 20 times of basic pay |
| job for more than 20 years | Half of the basic salary for every six months of employment |
