Gratuity Rules Gratuity is an important part of the salary structure of employees. Both the employee and the company contribute in this. However, the company’s stake is higher than that of the employee. To get gratuity you have to follow certain conditions. Let us know what is the rule for receiving gratuity and how it is calculated.
The government has made many provisions to improve the retirement of employees. One of these is Gratuity. Like Employee Provident Fund (EPF), gratuity is also contributed by the employee and the company. But, unlike EPF, here a small portion is deducted from the employee’s salary and the company bears the major burden.
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 from the company. If you work continuously for 5 or more years in the same company, 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 Centre’s New Wage Code and once it is implemented, crores of employees will benefit.
When is gratuity received?
Gratuity is usually received after retirement. But, if you leave or change your job after five years, you will still get gratuity. If the employee dies during service or becomes disabled, then gratuity is available even for less than five years of service.
If you have caused damage to any property of the organization during your employment, then it can also be compensated from your gratuity.
How is gratuity calculated?
The formula to calculate gratuity is very easy,
Total gratuity = (last basic monthly salary) x (15/26) x (years of service).
For example, you started your 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
The thing to note here is that except February, all the other months of the year have 30 or 31 days. But, under the Payment of Gratuity Act, 1972, working days including four weekly holidays have been fixed at 26 days.
If the company does not pay gratuity…
If you have worked continuously for five years in an organization 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, you can go to the District Labor Commissioner and complain. In case the decision is in your favor, the company will have to pay fine and interest along with gratuity.
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