Gratuity

What is a Gratuity?

Gratuity is defined as 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, 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, 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.

For employees who fall under the Gratuity Act, the formula used for calculating the gratuity amount 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 calculating the gratuity 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.

Also, See: Employee Appreciation