Gratuity Calculation Formula in India 2013 | Gratuity calculator
Gratuity is the payment made by the employer to his ex- employee for his past services. Gratuity is similar to a gift given by employer for appreciation of past services of his employee . The technical definition of gratuity given by ICAI is “gratuity is a voluntary payment made by an employer in appreciation of services rendered by employee .
Who is eligible for Gratuity ?
As per Payment of Gratuity Act 1972, any employee who has been in continuous service for 5 years is eligible for gratuity .
During the above mentioned 5 years , employee is eligible for casual leave and sick leave without affecting his eligibility.
In case of death of an employee , the above condition 5 Years of continuous service is not applicable i.e. even if an employee dies
after 2 years of service , he/she is still eligible for gratuity .
How is gratuity calculated?
a) Gratuity calculation formula for employees receiving monthly salary
(15/26) * Last Salary Drawn * Completed years of service
When calculating completed years of service , if an employee worked for more than 6 months , it will be considered as full year .
Example : Employee worked for 14 years and 7 month , then completed years of service = 15 years
Example: Employee worked for 14 years and 5 months ,then completed years of service = 14 years
Example: Employee worked for 14 years and 6 months, then completed years of service = 14 years
Last salary drawn = basic salary + dearness allowance
b) Gratuity calculation formula for piece rated employees
( workers receiving payment on the basis of the number of pieces produced )
Gratuity shall be calculated as follows:
Last drawn wages *15/26 *completed years of service
- Completed years of service are calculated in the same way as for employees receiving monthly salary.
- Last drawn wages are computed by taking average of the total wages received by him for a period of three months immediately preceding the termination of his employment. While computing daily wages, the total wages of last three months is to be divided by number of days the employee actually worked, and not by the number of days or the number of working days in the said period of three months .
Example : A piece rated employee received Rs. 30,000 during the last three months before his retirement. The factory had 60 working days in the last three months but the employee came to work for only 30 days.
Last salary drawn will be calculated as rupees 30,000÷30= Rs. 1000
Maximum Amount of Gratuity
The amount of gratuity cannot exceed Rs 10,00,000 (10 lacs) . Even if it exceeds , maximum amount payable by employer shall be Rs 10,00,000
When is Gratuity Payable ?
Gratuity is Payable on employee’s Supernnuation , Retirement Or death (whichever is earlier).
In case of death of an employee , gratuity is paid to their legal heirs (nominees)
Every employee who has completed one year of service is required to make a nomination. This nomination should be made within 30 days of completion of first year of service.
This nomination should be made in the favour of a family member. A nomination made in the name of any other person is void. However, if the employer does not have any family when he can make a nomination in favour of any person. But the employee will be required to make a fresh nomination within 90 days of acquiring a family.
Payment of Gratuity
After Gratuity becomes Payable , employer is required to pay it within 30 Days as per the provisions of Payment of Gratuity Act 1972 .If the employer fails to pay gratuity within 30 days then, he shall be liable to pay simple interest at the rate notified by central government
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By Paramjit Singh