Gratuity amount: Last year, the gratuity ceiling for central government employees was raised to Rs 25 lakh, taking into account the Dearness Allowance (DA) reaching 50% of their basic salary.
Gratuity amount: The gratuity is a single lump sum payment awarded to an employee in recognition of their extended service. This amount is determined by the employee’s final salary and length of service. The gratuity limit for central government employees has been raised to Rs 25 lakh from the previous amount of Rs 20 lakh, effective January 1, 2024. This increase comes as a result of the dearness allowance (DA) of central government employees being hiked to 50%.
The announcement of the new gratuity limit was made in a circular issued by the Department of Pension & Pensioners Welfare under the Ministry of Personnel, Public Grievances and Pensions on May 30, 2024.
Gratuity Act
The Gratuity Act is applicable to various sectors including factories, mines, oil fields, plantations, ports, railways, motor transport undertakings, companies, and shops with at least 10 employees. It entitles employees to receive gratuity payment equivalent to 15 days’ wages for every year of completed service, capped at Rs 10 lakh for non-government workers. Seasonal establishments, on the other hand, calculate gratuity based on seven days’ wages per season.
Last year, the gratuity ceiling for central government employees was raised to Rs 25 lakh, taking into account the Dearness Allowance (DA) reaching 50% of their basic salary.
The Gratuity Act guarantees that employees maintain the right to improved gratuity terms in all agreements or contracts. For companies under the jurisdiction of the central government or operating in multiple states, the Centre serves as the governing body.
Gratuity eligibility
The employee must be a full-time staff member earning wages from the company and must have served continuously for a minimum of five years.
Gratuity will also be provided in the following scenarios, regardless of the five-year requirement:
- Resignation after completing five years of service.
- Retirement as outlined in the company’s policy.
- Disability due to an accident or illness.
- In the event of the employee’s death, gratuity will be paid to the designated nominee or legal heir.
Formula for calculating gratuity
A simple formula for gratuity calculation is:
(Last salary) x (years of service) x (15/26)
- Salary components: This comprises of the basic salary, dearness allowance (DA), and commission.
- Monthly work days: A month is considered to have 26 working days.
- Calculation method: The 15-day average is determined based on half a month’s salary.
How to claim gratuity
To begin the process of claiming gratuity, a qualified employee must formally submit an application in Form I to their employer. In the event that the employee is unable to do so, their nominee or legal heir is permitted to act on their behalf.
Upon receipt of the application, the employer must verify the claim, acknowledge its receipt, and promptly calculate the gratuity amount owed to the employee. This is essential to ensure timely disbursement and avoid any delays.
According to the Payment of Gratuity Act, 1972, the employer is obligated to pay the gratuity amount within 30 days from the date it becomes due. Failure to do so may result in the employer being required to pay interest on the outstanding amount from the due date until the actual payment date.
Resolution of Disputes: Should there be a disagreement regarding the gratuity amount or the eligibility of an employee, the matter can be addressed with the governing body as per the Act. The employee is required to file an application in Form N to the governing body of the specific region.
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