Gratuity Calculation: What will be your gratuity on Rs 50,000 last-drawn basic salary and 6.6 years of service?
If a company has 10 or more employees, it must give a gratuity to those who have worked there for 5 years or more. Even if the company later has fewer than 10 employees, it still has to give a gratuity to those who qualify. To qualify for gratuity, an employee must have completed a minimum of five years of continuous service with the company.
Gratuity is a lump sum amount that an employer gives to an employee when they leave their job after working for at least 5 years. The amount is usually paid when the employee quits or retires, based on how long they worked. However, there are some situations where the company can choose not to pay the gratuity. Thus, let’s find out your gratuity amount with Rs 50,000 as the last-drawn salary in the service period of 6.6 years.
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(Disclaimer: Our calculations are projections and not investment advice. Do your due diligence or consult an expert for financial planning)
What is gratuity?
Gratuity is a thank-you payment from an employer to an employee for their loyal service. To get this payment, you need to work for the company for at least 5 years. It's a one-time lump sum payment. There's even a law, called the Payment of Gratuity Act, that makes sure this happens. And if something happens to the employee, their family gets the payment instead.
What should be length of service?
Under the Payment of Gratuity Act, of 1972, employees are entitled to receive gratuity after completing 5 years of continuous service with an employer.
What are the eligibility criteria for gratuity?
To be eligible for gratuity, employees must have uninterrupted 5 years of service in an organisation. The organisation must fall under the Payment of Gratuity Act, of 1972.
When are you eligible for Gratuity?
You can get gratuity in the following situations:
When you retire from your job
If you quit after working for the same company for 5 years
If you die or become disabled due to illness or accident while working
When you're eligible for superannuation (a type of retirement benefit)
Organisational criteria for gratuity
Organisations employing 10 or more individuals over the past years and following the Payment of Gratuity Act, of 1972, are required to pay gratuity.
How service years are counted
You need to complete at least 5 years of uninterrupted service to get gratuity. But after someone has completed 6 months of service, it will be counted as a full year.
What are the factors that determine the gratuity amount?
The number of years and the last-drawn basic salary of an employee are factors used to calculate the gratuity amount.
Can a company opt out of the Payment of Gratuity Act?
If a company falls under the Payment of Gratuity Act, of 1972, it cannot count itself out.
Formula to calculate gratuity
(Last Drawn Salary x Number of Years of Service) X 15/26
Here 15 refers to 15 days’ wages per year, and 26 refers to 30 days in a month excluding Sundays.
What will be your gratuity on Rs 50,000 basic salary for 6.6 years of service?
Let’s calculate gratuity for an employee with a basic salary of Rs 50,000, 6 years, and 6 months of service (rounded to 7 years).
Gratuity = (50,000 × 7 × 15) ÷ 26
Gratuity = Rs 2,01,923