Gratuity: 4 Important Information About Gratuity and Its Calculation

what is gratuity

Friends! Gratuity in India is a very important part of the salary. But still many people don’t have complete information about what it is? Many people don’t know how it is calculated? Who pays him and when does he get it?

Therefore, in this article, I am going to answer all the questions and tell you about all the information related to gratuity. So, first of all, let’s see what it is?

What is Gratuity?

In a way, we can also say called it a kind of thank you that an Employer or a company wants to give to its Employee. We call it a thank you because the Employee has worked for a long time in the company and has done his work with full devotion. So that’s why we can call it a thanksgiving.

The gratuity was first voluntary, but after the gratuities act of 1972, it became a compulsory thing. That is, every company has a compulsory to give the gratuity to Employees.

But now there will be a question in your mind that at what kind of companies do these gratuities give?

So, if the company have 10 or more employees, in the last one year, they will have to give the gratuity to their Employees. In a way, this is part of your salary but you will not get it in in-hand. You get this when you leave the company.

Eligibility

It is compulsory for any person to work at least 5 years in any company for getting gratuity. But after completing 5 years you will not get the money. You will get this money when you either leave the company or you will retire from there. After leaving the company, if you go to any other company or you are released from that company, you get gratuity even after it. And these gratuities are available in both government and private companies. It is not that they get only in the government company.

One more thing is that if the employee, unfortunately, gets death or get disabled due to which they can not work, even in those cases, gratuity is available to them even if they not completed 5 years on that company.

Who pays Gratuity Money?

There are two options for Employer to pay to your Employees. The first thing is either they can do it in their own pocket or the other thing many companies take group gratuity plans. This is a kind of insurance plan where the company has to give some installments every year and in return, the gratuity company will pay your gratuity when you left the company.

How to Calculate it?

This is the most important question that how gifts are calculated. So it is very easy to calculate. Here you have to first take all the years you spent in the company and multiply it by 15 and divide it by 26 and then multiply from your latest monthly salary.

Number of years in company × 15  ÷ 26 × Last Drawn Monthly Salary (Basic + DA)

If you are doing a government job, then you have to only consider your basic salary and DA. The allowances that meet you will not be counted in your salaries or here. You also need to know that if you work on your company less than 6 months then it counts to 0 years. And if you worked for more than 6 months i.e. 7 or 8 months then it will count for 1 year.

Now let’s see some example basis on this concept.

Example 1

Number of years in Company: 5 years and 7 months

Last Drawn Salary (Basic+DA): Rs. 40,000

Gratuity = 6 years × 15 ÷ 26 × 40,000 = Rs. 138,461

Example 2

Number of years in the company: 20 years and 7 months

Last Drawn Salary (Basic + DA): Rs. 200,000

Gratuity = 21 years × 15 ÷ 26 × 200,000 = Rs. 2,423,077

But friends here is a government rule that more and more gratuity can be given is just about 2,000,000. Therefore, only 2,000,000 gratuities will be given in Example 2. But if there is a company in Example 2, if he wants, he can give some extra money to his Employee but he will have to pay only as Performance Bonus but will not be given as Gratuity.

Also, read: What is Inflation? Definition, Types, Effects, and Control of Inflation

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