Gratuity Rules: Big news for salaried persons. If you work for a company for approximately 5 years (4 years and 240 days), you are eligible for gratuity. Furthermore, if you work in coal or other mines or in underground projects, your 5-year tenure is considered to be 4 years and 190 days.
Legally, employees working underground are entitled to gratuity after 4 years and 190 days. This is often viewed as a reward for your loyalty to the organization. Gratuity is governed by the Payment of Gratuity Act, 1972. A small fraction of the gratuity amount is deducted from the employee’s salary, and the calculation method is predetermined.
Gratuity is compulsory for companies that have more than 10 employees. However, if an employee is dismissed due to misconduct or criminal behavior, they may lose their gratuity entitlements. This article will clarify how gratuity is computed. We will also detail what components are included in the salary when calculating gratuity.
How is gratuity calculated?
As mentioned, there is a specific formula: your final salary * (15/26) * (years of service at the company). Let’s illustrate this with an example. Imagine you worked for a company for 10 years and your last salary before departing was Rs 80,000. It’s important to note that when calculating gratuity, only your basic salary and dearness allowance are considered. Using the numbers provided in the formula, it would look like this: 80,000 * (15/26) * (10). Consequently, your gratuity would amount to Rs 461,538.
What do 15 and 26 signify?
In this context, 26 refers to the number of working days in a month, with four days being Sundays. However, only 15 days of the year are factored into gratuity calculations. Another key point is that any work exceeding six months is regarded as a full year. Therefore, if you worked for five years and seven months at a company, it will be counted as seven years for gratuity purposes.
Basic salary or gross?
This is the most important question. Please note that gratuity is calculated based solely on basic salary + dearness allowance (DA). This does not include gross salary (which includes HRA, bonuses, allowances, etc.) or CTC.
This means that even if your salary structure includes various allowances, only basic salary and DA are considered when calculating gratuity, and only these two elements will be included in the calculation.
