Note on Gratuity

Note on Gratuity

Calculation of Gratuity for the Employees Who Are Not Covered under the Gratuity Act Even if the organisation is not part of the Act, they can pay gratuity.

However, the calculation of gratuity is based on an individual’s half month’s salary for every year that has been completed.
The salary includeThe following formula is considered for the calculation of gratuity amount for employees who are not covered under the Gratuity Act:

Gratuity Amount = (15 * Last drawn salary amount * period of service) / 30

For Example:

For example, if you have at a company for 10 years and 8 months and your salary is Rs.50,000, the calculation of the gratuity amount is done as follows:

Gratuity Amount: (15 * 50,000 * 11) / 30 = Rs.2.75 lakh.

The period of service of an employee is taken as a whole year for the calculation. In case the number of months worked in the last year is less than 6 months,

the previous number of completed years is considered. However, if the number of months completed in the last year of service is more than 6 months,
the year is considered to be a full year for the purpose of calculation. Thus, the working tenure has been considered as 11 years. If the service period had been
10 years and 4 months (or anything less than 6 months), the number of years of service would have been considered as 10 years only.

As per the rules recorded on the pensioner’s portal of the government, the amount of gratuity at the time of retirement is calculated as follows:

Gratuity Amount is equal to one-fourth of the last-drawn basic salary of an employee for each completed six-month period.

The retirement gratuity amount which is payable is 16 times the basic salary. However, it is subject to a cap of Rs.20 lakh.