If your basic salary is ₹65,000 and you’ve completed 12 years of illustrious service, this news is a treasure trove for you! Gratuity is a powerful retirement benefit based on your final salary and length of service. You receive this substantial lump sum upon leaving your job or retiring. Today, we’ll explain the full mathematics of gratuity, so you can easily determine the amount you’re entitled to from the comfort of your home.
What is gratuity?
Gratuity is a kind of “thank you gift” that companies give to their employees for their long-term and loyal service. It’s typically awarded after completing at least 5 years of service, primarily to provide financial security.
What rules govern gratuity?
Gratuity is a financial benefit that an employee receives after working for an organization for a long period of time. It is provided under the Payment of Gratuity Act, 1972. This law applies to two types of employees: first, those covered by the Act (companies with 10 or more employees); and second, those employees who are not covered by the Act but whose companies provide gratuity benefits according to their own policies.
A simple calculation of gratuity on a salary of ₹65,000
Now, let’s discuss how gratuity is calculated for employees covered under the Gratuity Act. The simple formula for calculating gratuity is as follows:
Gratuity amount = (Last salary * 15 days * Service period) / 26
Here, ‘Last salary’ includes your basic salary and dearness allowance, and 26 days represents the number of working days in a month, based on which 15 days’ salary is calculated.
Gratuity for 12 years of service
Suppose your last basic salary is ₹65,000 and you have worked continuously for 12 years in a company. According to this formula, your gratuity amount will be more than ₹4 lakh.
Calculation
With a salary of ₹65,000 and 12 years of service, you will receive a maturity amount of approximately ₹4,50,000. This amount is paid in a lump sum upon retirement, resignation, or leaving the job.
Why is it important for every employee to know the gratuity rules
Gratuity is not just a financial benefit, but a recognition of an employee’s dedication and long-term tenure. The rules state that every employee receives an amount equivalent to 15 days’ salary for each completed year of service. This is a legal right of the employee, which no company can withhold. This financial reward is given in the event of retirement, job loss, disability, or death. Therefore, every employee must know their service details and gratuity eligibility to better plan their future financial situation.