Curated By: Business Desk
Last Updated: August 09, 2023, 11:45 IST
Gratuity is computed based on the basic salary and dearness allowance.
Employees are considered eligible for gratuity after five years of continuous service.
Every time you join a new company, some of your cost-to-company (CTC) goes towards gratuity. According to the Payment of Gratuity Act, 1972, an employee is considered eligible to receive a gratuity amount. Gratuity is calculated as 4.81 per cent of basic pay under the Payment of Gratuity Act 1972. For example, if a person earns a yearly salary of Rs 5,00,000, then he or she is entitled to a yearly gratuity of 4.81 per cent, that is Rs 24,050.
This means that the employee will secure a gratuity of Rs 2,000 per month. The gratuity amount earned by an employee depends upon the period of the service and the last drawn salary. It is computed based on the basic salary and dearness allowance. To calculate gratuity, every month is considered 26 days for the companies covered under the Gratuity Act 1972. Gratuity is paid every 15 days for each completed year of service. Formula to calculate gratuity is the Last drawn salary (basic salary plus dearness allowance) * number of completed years of service * 15/26.
Employees are considered eligible to receive a gratuity amount after they have completed five years of continuous service at one organisation. Gratuity is released along with or just before/ after your full and final settlement is done at the time you are leaving the company.
The government mandates that employers must pay the gratuity amount within 30 days of an employee’s resignation. There are many scenarios when the company refuses to pay the gratuity, to which the employees are legally entitled. In this case, they can send a legal notice to the employer, and then a claim to the jurisdictional controlling authority as well. The claim with the authority has to be essentially filed within 90 days from the date of severance of employment. Employees can also complain to the district office of the labour commissioner.
The employer gets 30 days to comply with the officer’s request for payment of the gratuity. The employer has to specify the amount payable and the payment date as well. It has to be done within 15 days of receiving the application for the gratuity amount.
