Gratuity is the amount given by the company to the employee as a reward. In simple words, gratuity is a reward for working in the company for a long time. It is given according to a fixed formula.
If you work in a company for 5 consecutive years, then you are considered entitled to gratuity. Gratuity is the amount given by the company to the employee as a reward. In simple words, gratuity is a reward for working in the company for a long time. It is given under a fixed formula, although if the company wants, it can also give more amount to the employee than the fixed formula. A small part of the gratuity is deducted from the salary of the employee, but a large part is given by the company. Gratuity money is given on leaving the job or at the time of retirement. If you are also a salaried person, then you must know about some rules related to gratuity.
These rules every employee should know
- If 10 or more people work in a private or government company, then that company should give the benefit of gratuity to all the employees. Apart from the company, shops, mines, factories come under the purview of this rule. But any employee becomes entitled to gratuity only after working in that company for 5 consecutive years. If the job is of 10 or 20 years, then a good amount of gratuity is available, so that the person can fulfill all his responsibilities.
- There is also a formula to decide how many years you have worked in an institution. If an employee has worked in the company for 4 years 8 months, then his job will be considered as full 5 years and he will get the amount of gratuity according to 5 years. If he has worked for less than 4 years 8 months, then the period of his service will be counted as 4 years and gratuity will not be available.
- The notice period of the employee is also counted in the period of gratuity. Suppose you have resigned after working in a company for four and a half years, but served a notice period of two months after the resignation. In such a situation, the period of your job will be counted as 4 years 8 months only. And assuming it to be 5 years, the amount of gratuity will be given.
- If an employee dies during the job, then the entire amount deposited in his gratuity account is given to his nominee. In such a case, the condition of having at least 5 years of employment does not apply.
- A formula to calculate gratuity is – (last salary) x (number of years worked in the company) x (15/26). Last salary means the average of your last 10 months salary. Basic salary, dearness allowance and commission are included in this salary. Due to 4 days of Sunday being week off in the month, 26 days are counted and gratuity is calculated on the basis of 15 days.
- When the company or institution is not registered under the Gratuity Act, then the employees are not covered under the Gratuity Act. In such a situation, whether to give gratuity or not, it is the choice of the company. But if the company still wants to give gratuity to an employee, then its formula is different. In such a situation, the amount of gratuity will be equal to half a month’s salary for every year. But the number of working days in a month will be considered as 30 days, not 26.
- Any company can give gratuity up to a maximum of Rs 20 lakh to its employee. The amount received as gratuity is tax free. This rule applies to both government jobs and private jobs.
