How is Gratuity Calculated?
There can be two instances to calculate Gratuity:
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For an employee whose employer is covered under the Gratuity Act |
For an employee whose employer is not covered under the Gratuity Act |
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Rohit is employed in an organization for a period of 12 years. The last drawn basic salary of Rohit was ₹80,000 (including DA). Calculate the amount of Gratuity payable to Rohit by his company. Formula for the calculation of Gratuity =
Where, n=Number of years of service in an organization Hence, Gratuity= 12*80,000*15/26 Gratuity= ₹ 5,53,846/- |
Rohit is employed in an organization(Not covered by the Gratuity Act) for a period of 12 years. The average salary for the last 10 months amounts to ₹70,000 (including DA). Calculate the amount of Gratuity payable to Rohit by his company. Formula for the calculation of Gratuity =
Hence, Gratuity= 72,000*12*1/2 Gratuity= ₹ 4,32,000/- |
Here, in Case I, two points of consideration are important, which are:
- As per the Gratuity Act, the amount of gratuity payable cannot exceed more than Rs 20 lakh. Any excesses above 20 lakhs shall be treated as ex-gratia.
- While calculating n in the formula, In case the employee has worked for more than six months in the last year of employment, then the figure shall be rounded to the nearest figure. In the case of the above example, if Rohit would have worked for 12 years and 7 months, the number of years shall be rounded off to 13. However, in case he has worked for 12 Years and 5 Months, then the number of years shall be considered as only 12.