As the term suggests, gratuity is a payment made by a company to its employees because of their loyalty and hard work for a longer term. This financial assistance is viewed by the Government as a benefit on par to febrication which is also tenure based. The legislation especially for gratuity does not come without enabling laws governing it. The Gratuity Act is relevant to persons working in organizations that employ ten or more.

Further, the Gratuity Act guarantees that the employee will lose nothing even if the gratuity terms are favorable in any other agreement. The Centre plays the role of the licensing authority to establishments that are under the control of the central government or are operating in more than one state.

How do you calculate gratuity

Gratuity is governed by the Gratuity Act, and indeed there is a formula for its calculation. It is a simple and straightforward formula. It goes like this: (Last salary drawn by employee) x (Years of service of the employee) x (15/26).

The remuneration package consists of the total contributions made to the basic salary and honorary dearness allowance there are working days which are calculated within a month in this case being 26 as it explains the denominator.  There is the number 15 which indicates the basis which the period is 15 days the salary is calculated and earned.  This held true of years of service the employee worked with the company in question. A crucial aspect was that an employee should never have worked in the company for over 5 years in order to keep receiving the gratuity. In the event that an employee dies before the service period of 5 years ends the condition is not applicable and payment is made to the next of kin of the employee. This implies that the only qualifying criterion is completion of five years of constant or continuous service without any breaks.

What’s the gratuity for a period of 5 years and a period of 10 years?

So consider this: according to the last compensated worked figure for employees, we consider it is 40,000. Plenty of people expect their evocation salary to rise above RsThis alone becomes a factor on the amount which will be paid out as gratuity. Using the information that has been shared, it becomes clear who is considered as an employee, for course purposes lets consider that these employees work for a tech company and earned a salary of 40,000.

Let’s say for instance that this employee worked as a manager for ten years and ended up receiving the highest salary of 50,000 at max. After ten years of being with the company, they ultimately receive a graduation in the amount of 2,88,461. To break it down: 50,000 x 7 x 15/26 = X