Gratuity serves as a reward for employees who have completed a minimum of 5 years of continuous service, acknowledging their loyalty and commitment to the organisation. Organisations with 10 or more employees are required to pay gratuity as per the Payment of Gratuity Act, 1972. For calculation purposes, any service period of 6 months or more is counted as a full year. Let’s calculate the gratuity amount for last-drawn salaries of Rs 37,000, Rs 56,000, and Rs 72,000 after 12 years and 7 months of service, which will be considered as 13 years. 

What is service requirement to be eligible for gratuity?

Employees are eligible for gratuity after completing 5 years of continuous service with the same employer, as per the Payment of Gratuity Act, 1972.

Who is eligible for Gratuity?

To qualify for gratuity, employees typically need to meet two key requirements:
1. Complete 5 years of continuous service
2. Work in an organization covered under the Payment of Gratuity Act, 1972

When are you eligible to receive gratuity benefits?

Gratuity is payable in the following situations:
1. Retirement: Upon retirement from service
2. Resignation: After completing 5 years of continuous service
3. Death or Disability: In the event of death or disability due to accident or illness while in service
4. Superannuation: Upon reaching superannuation age (a type of retirement benefit)

How are service years counted for Gratuity?

To get gratuity, you need 5 years of continuous service. Any service period of 6 months or more is counted as a full year.

What determines Gratuity amount?

The number of years and the last-drawn basic salary of an employee are used to calculate the gratuity amount.

Can a company opt out of the Payment of Gratuity Act?

If a company falls under the Payment of Gratuity Act of 1972, it cannot count itself out. 

What is formula to calculate gratuity?

(Last Drawn Salary x Number of Years of Service) X 15/26
Here, 15 refers to 15 days’ wages per year, and 26 refers to 30 days in a month, excluding Sundays.

What will be your gratuity on a Rs 37,000 basic salary for 12.7 years of service?

Let’s calculate gratuity for an employee with a basic salary of Rs 37,000, 12 years, and 7 months of service (rounded to 13 years).
Gratuity = (37,000 × 13 × 15) ÷ 26
Gratuity = Rs 2,77,500

What will be your gratuity on a Rs 56,000 basic salary for 12.7 years of service?

Let’s calculate gratuity for an employee with a basic salary of Rs 75,000, 12 years, and 7 months of service (rounded to 13 years).
Gratuity = (56,000 × 13 × 15) ÷ 26
Gratuity = Rs 4,20,000

What will be your gratuity on a Rs 72,000 basic salary for 12.7 years of service?

Let’s calculate gratuity for an employee with a basic salary of Rs 64,000, 6 years, and 7 months of service (rounded to 13 years).
Gratuity = (72,000 × 13 × 15) ÷ 26
Gratuity = Rs 5,40,000

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