Gratuity meaning is- the amount employees receive as a part of their gross compensation at their employee lifecycle from their employer. It’s regulated and compensated under the Payment of Gratuity Act, of 1972. It is offered as a token of appreciation for an employee’s services to the company.
The law applies to establishments with 10 or more employees in the company. To be eligible for gratuity, for the calculation of gratuity an employee must have completed at least five years of employment in the company. However, you won’t get any compensation in the case of employee disability or death due to an accident or severe illness. But you can definitely define the gratuity nominee for the future.
The gratuity calculation formula is given below, as per the situation you can count it.
For employees who fall under the Gratuity Act, the formula used for how is gratuity calculated is as follows:
Gratuity = (Years of service x Last drawn salary)15/26, where the last drawn salary includes basic salary and dearness allowance.
For employees not falling under the Gratuity Act, the formula used for how to gratuity calculated amount is as follows:
Gratuity = (Years of service x Last drawn salary x 15)/30, where the last drawn salary includes basic salary, dearness allowance, and commissions.
Now, as per the above formula, you can get the exact idea about gratuity, and how to calculate it.
Payroll software can help to manage salary payments, calculate gratuity, and other compliance without any hassles.
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