Friday , May 26 2017

How to calculate Gratuity

Gratuity is an amount paid by the employer to employee as a gratitude for his service to the company for more than 5 years. The Gratuity amount depend upon the employer. In US this is also called as Tip, however in India it is called as ‘Gratuity’. As per Gratuity Act 1972, a minimum Gratuity amount is to be paid by the employer. Calculation of gratuity may vary according to the job category. Here we have shown how to calculate Gratuity amount for employee of different establishments in India. At last also read important facts about Gratuity payment in India.

Gratuity formula for monthly salaried employee

Gratuity = Last drawn salary x (15/26) x Total years of service

Last drawn salary= basic salary + DA (Dearness allowance)
Total years of service rounded off to nearest integer, for example 9 years & 7 months means 10 years of service and 12 years & 5 months means 12 years.

Example of Gratuity calculation: John worked for an engineering company for 10 years and 9 months, his last drawn basic salary was 30000 and DA 15000, than gratuity amount after his resignation would be as follows.

Last drawn salary= 30000+15000=45000
Total years of service=11 years
Gratuity= 45000×15/26x 11= 285577

Gratuity formula for Piece Rated Employee

Gratuity = Last drawn wages x (15/26) x Total years of Service 

Last drawn Wages = Total wages received during three months immediately preceding termination /Days actually worked
Last drawn wages shall not include overtime wages.
Total years of service includes a part of year in excess of six months

Gratuity formula for employee of a Seasonal Establishment.

Employee of seasonal establishment shall be paid gratuity at the rate of 7 days wages for each season


Gratuity Eligibility and Other Facts:

  1. An employee is eligible for Gratuity after 5 years of service.
  2. Gratuity is calculated based on last drawn (basic + DA) salary and total years of service.
  3. Any establishment having more than 10 employees have to obey gratuity act and pay gratuity to their employee.
  4. Gratuity amount upto 10 lakh is eligible for tax rebate.
  5. In USA a gratuity (also called a tip) is a sum of money customarily tendered, in addition to the basic price, to certain service sector workers for a service performed or anticipated.



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