Gratuity is a significant benefit for employees, providing a financial cushion even if the employee leaves or retires after working for at least five years in the company. Understanding this benefit is crucial for all employees.
It is applicable in both public and private sectors. Gratuity is calculated based on the employee’s basic pay and Dearness Allowance (DA) during the last service period.
According to the Gratuity Act, 26 monthly working days should be considered for calculation and payment.
Employees who have worked in an organization with ten or more people for at least five years are eligible for gratuity.
If you meet these criteria, you are entitled to an amount equivalent to 15 days’ wages for every year of service, based on your basic salary, DA, and commission.
It’s important to note that working for more than six months a year is counted as a full year of service. To calculate gratuity, the formula is (monthly pay X 15 X period of service) / 26 (working days).
For example, if the basic salary is Rs. 15,000 and the service period is 35 years, the gratuity would be (15,000 x 35) = Rs. 5,25,000.
Then, (5,25,000 x 15) = Rs. 78,75,000. Dividing this by 26 working days per month gives Rs. 3,03,846.15 as the gratuity for 35 years on a basic salary of Rs. 15,000. Basic pay is the only applicable factor for calculation.
Gratuity Calculation:
Gratuity Formulae = (SxNx15)/26
- S (Salary) = Basic Pay + DA
- N = Number of Years Serviced in the Organization
- 15 = Half month salaried considered for gratuity
- 26 = Average number of days considered (26 = 30-4 Sundays)