Gratuity Calculation Formula: Gratuity is an important part of the salary structure of employees. Both the employee and the company contribute to it. However, the company’s share is more than that of the employee. To get gratuity, you have to follow some conditions. Let us know what are the rules for getting gratuity and how it is calculated.
Gratuity Calculation Formula: The government has made many provisions to improve the retirement of employees. One of these is Gratuity. Like Employee Provident Fund (EPF), Gratuity also has a contribution of the employee and the company. But, unlike EPF, here a small part is deducted from the employee’s salary and the company bears a major burden of it.
Let us know what gratuity is, when it is received and how it is calculated.
What is Gratuity?
Gratuity is a kind of reward for loyalty to the company. If you work continuously for 5 or more years in the same company, then you become entitled to gratuity. However, there is talk of reducing the service period of 5 years to one year. This has been discussed in the New Wage Code of the Center and crores of employees will benefit when it is implemented.
When is gratuity received?
Gratuity is usually received after retirement. But, even if one leaves or changes the job after five years, gratuity will be received. If the employee dies or becomes disabled during service, gratuity is received even after serving for five years less.
If you have caused any damage to the property of the organisation during your job, that can also be compensated from your gratuity.
How is gratuity calculated?
The formula for calculating gratuity is very simple,
Total Gratuity = (Last Basic Monthly Salary) x (15/26) x (Years of service).
For example, you started the job in 2019 and resigned in 2024. At the time of resignation, your basic monthly salary was Rs 50 thousand. So your gratuity amount will be known like this.
50,000 x (15/26) x 5 = Rs 1,44,230
It is worth noting here that except February, all other months of the year have 30 or 31 days. However, under the Payment of Gratuity Act, 1972, the working days have been fixed to 26 days including four weekly holidays.
If the company does not give gratuity then…
If you have worked in an organization for five consecutive years and you are not accused of doing any illegal work, then you will get the full amount of gratuity. If the company stops your money, then you can go to the District Labor Commissioner and complain. In case the decision comes in your favor, the company will have to pay gratuity as well as penalty and interest.
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