Gratuity Calculator

What is Gratuity?

Gratuity is a sum of money given by an employer to an employee as a reward for long and dedicated service. It is usually a lump sum amount provided when an employee completes a specific period, often five years or more, with the same employer.

It is governed by the Payment of Gratuity Act, 1972. The amount is often based on the employee's last salary and years of service

What are the Eligibility Criteria for Payment of Gratuity?

Completion of a Specified Service Period: In many cases, employees become eligible for gratuity only after completing a specific period of continuous service with the same employer. This period is often set at five years or more, although there are exceptions, such as cases of death or disability.

Termination Due to Retirement or Resignation: Gratuity is typically paid when an employee retires, resigns, or otherwise leaves the job. It may also be payable in the case of death or disablement.

Coverage Under Gratuity Act: Eligibility may be determined by whether the employer and the employee fall under the purview of the country's Gratuity Act or a similar legal framework governing gratuity payments.

Nomination: Employees may be required to nominate their beneficiaries to receive the gratuity amount in case of their death.

Employment Termination Reasons: Gratuity may not be payable if the employee is terminated from service due to misconduct or any act that goes against the terms of employment.

Gratuity Calculation Formula

If you are an employee of a private company providing EPF facilities, you may be eligible for gratuity after completing 5 years of service. Additionally, in cases of injury or disability due to an accident or disease, an employee can receive gratuity before completing 5 years. All gratuity payments are governed by the Payment of Gratuity Act 1972, and the calculation depends on the last drawn salary and years of service.

The basic formula is: G = n*b*15/26

Where:

• n- The number of years worked in the organization.
• b- Last drawn basic salary plus Dearness Allowance (DA).
• G- Gratuity amount you are eligible for.

Imagine employee B has dedicated 8 years of service to a company, with a monthly basic salary plus DA amounting to ₹40,000. To calculate the gratuity amount, you can use the formula:

G = n*b*15/26

G= 8*40000*15/26

G= ₹184,615.38

So, employee B would be eligible to receive ₹184,615.38 as gratuity after 8 years of service with a monthly basic salary plus DA of ₹40,000.

Under the current gratuity laws in India, there are rules and limits established by the Payment of Gratuity Act, 1972. Here are the main points in simpler terms:

• ‍Maximum Amount: You can't get more than ₹10 Lakh as gratuity according to the current laws. Anything above this limit is called ex gratia payment.‍
• Rounding Off: If you worked, let's say, 17 years and 6 months, they round it to the nearest whole number. So, it would be considered as 18 years for calculating your gratuity.

Advantages of Using Gratuity Calculator

Using a gratuity calculator provides several advantages for both employers and employees. Here are some key benefits:

• Accuracy: Gratuity calculations can be complex and are often based on factors like years of service and the last drawn salary. A gratuity calculator ensures accurate calculations, reducing the chances of errors.
• Time-saving: Manual calculations can be time-consuming, especially when there are multiple variables involved.
• Financial Planning: Gratuity is often a significant component of an employee's retirement benefits. A calculator allows individuals to estimate their gratuity amount, aiding in long-term financial planning.
• Transparency: Employees can use a gratuity calculator to understand how their gratuity is calculated.