Gratuity is a lump sum payment given to an employee when they leave their job or retire. It can be said that it is a reward given by the company to the employee for long service.
Gratuity is a lump sum payment given to an employee when they leave their job or retire. It can be said that it is a reward given to the employee by the company for long service. This amount is determined by the employee’s final salary and the number of years of service.
Gratuity Act
The Gratuity Act applies to various sectors including factories, mines, oil fields, plantations, ports, railways, motor transport companies, establishments with at least 10 employees and shops. The Act entitles employees to receive a gratuity equivalent to 15 days’ salary for every year of service completed. Its limit for non-government employees is Rs. 10 lakh. The Gratuity Act ensures that employees get the best gratuity.
Under the Gratuity Act, companies are required to pay gratuity to employees who retire or leave the company after completing at least five years of service. Last year, the gratuity limit for central government employees was increased from Rs 20 lakh to Rs 25 lakh. The gratuity limit was also increased after the dearness allowance (DA) of employees was increased by 50%.
Who will receive the benefit of the gratuity?
1. Under the Gratuity Act, companies are required to pay gratuity to employees who retire or leave the company after at least five years of service. An employee is entitled to receive gratuity in the following cases:
2. In some circumstances, an employee may receive gratuity even if he has worked for less than 5 years, even if he retires as per the company policy upon resignation after completing five years of continuous service.
3. In case of death of the employee, the nominee or legal heir will be paid the gratuity. Even if he has not completed 5 years of service, if he is disabled due to accident or illness, the gratuity will be paid. Employees working in underground mines will be paid if they have worked continuously for 4 years and 190 days, while employees working in other companies will be paid if they have worked continuously for 4 years and 8 months, i.e. 4 years and 240 days.
Gratuity calculation formula
A simple formula is used to calculate the gratuity amount. You can find out your gratuity amount using the formula given below:
(Last salary) x (Years of service) x (15/26)
Salary component: Salary includes basic salary, dearness allowance (DA) and commission.
Monthly working days: 26 working days are considered in a month.
Calculation method: A 15-day average is determined based on half a month’s salary.
How do I claim a gratuity?
To claim gratuity, an eligible employee must submit an application in Form I to his/her organization. If the employee is unable to do so for some reason, his/her nominee or legal successor will be allowed to do so on his/her behalf.
Upon receiving the application, the company first verifies the claim and then immediately calculates the gratuity amount to be paid to the employee. This is necessary to ensure timely payment of the gratuity and avoid any delays.
As per the Gratuity Act, 1972, the employer is required to pay the gratuity within 30 days from the due date. If for some reason he is unable to do so, the employer will have to pay interest on the outstanding amount from the due date till the date of actual payment.
In case of any dispute regarding the amount of gratuity or the eligibility of the employee, a case will be filed before the Governing Body as per the law. For this, the employee has to file an application in Form N with the Governing Body of that particular region.
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