How to calculate gratuity?

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Gratuity is a part of the benefits that an employee receives from the employee, who has completed 5 years of continuous service.

An employee could leave his job for various reasons, after which receiving his gratuity.

There could be various ways of calculating gratuity, depending on whether an employee is covered under the payment of gratuity act, 1972 or it is a voluntary step on the part of a company etc.

How to calculate gratuity?

For employees covered under the Payment of Gratuity Act, 1972

If an employee is covered under the Act, then he is entitled to a gratuity amount of 15 days salary/wages, multiplied by the number of years he has put in.

It's important to note that he salary would include basic wages plus the dearness allowance that an employee last drew. You then need to divide this figure by 26.

Say you draw a monthly salary of Rs 10,000, that includes your basic pay, plus the dearness allowance and you have put in 10 years of service.

Then in that case your calculation would be as follows: Gratuity = Last drawn salary x 15/26 x No. of years of service

Gratuity payable = 10000x15/26x10 = Rs 57,692

It may be noted that the number of years would be rounded off to the nearest year. Also, one needs to ensure continuous service as defined by the ACT.

The gratuity of an employee whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage of loss so caused.

One has to put in a minimum service of 5 years to be eligible for gratuity, however, if the employee dies than the limit maybe relaxed to even one year.

Gratuity is an excellent benefit given for an individual till he reaches the age of retirement.

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