What is Gratuity?

Gratuity is the monetary reward given to an employee for a long service rendered towards the growth of the company. Here is an online tool that helps you calculate your gratuity based on years of service or date of joining & leaving.

For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. An employee gets gratuity when he/she resigns, retires or is laid off. In case of death or disablement there is no minimum eligibility period.

Gratuity Formula

The gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula:

GRATUITY AMOUNT = ( Last Drawn Basic Salary + Dearness Allowance ) X No. of completed years of service X 15/26.

Note: In the above formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit.

On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered five years. Anyone with 5 years or less of service usually do not qualify for gratuity. An employer can, however, give higher gratuity than the amount under the prescribed formula.

FAQs

1. Once you have completed 5 years, what is the method to calculate the number of months?

Ans: Well, any service that is more than 6 months is considered as one year. For example, if your tenure in the organization was 7 years 6 months, then to calculate gratuity your tenure will be taken as 8 years.

2. What is the limit that is received as a Gratuity Benefit?

Ans: As per the latest update, the Central government has decided to increase the gratuity payment limit from the existing Rs. 10 lakh to Rs. 20 lakhs.

3. Can you select a nominee for the gratuity?

Ans: To choose the nominee you need to fill Form ‘F’ at the time of joining the company.

4. Who is eligible for gratuity?

Ans: An employee who has completed five years of continuous service in the same organization is eligible to receive gratuity. An employee gets gratuity when he/she resigns, retires or is laid off. In case of death or disablement there is no minimum eligibility period.