6 Years Of Service With A ₹45,000 Salary – What’s Your Gratuity Payout?

Gratuity is a financial benefit provided by an employer to an employee as a token of appreciation for their long-term commitment and service. Under the Payment of Gratuity Act, 1972, this benefit is mandated for employees who have completed a specified tenure, typically five continuous years with the same organisation. For employees, it’s a valuable part of their financial security as they leave a company, adding to retirement or transition funds and rewarding them for their sustained contribution.

Which Organisations Provide Gratuity?

Organisations that meet certain criteria are bound by law to pay gratuity. This includes

• Factories, mines, railways, oilfields, and plantations.
  
• Shops or establishments with ten or more employees at any point during the previous year.
  
• Specific businesses and organisations specified by the Central Government under this regulation.
  

This ensures that most large and medium-sized organisations provide this benefit, regardless of industry, if they meet these minimum employee requirements.

Conditions for Gratuity Eligibility

While employees are generally eligible after five years of continuous service, certain exceptions allow gratuity without fulfilling this tenure

• In case of the employee's death, where the gratuity is provided to their family.
  

If the employee suffers from a disability due to an accident or illness, making them unfit for continued employment.

When Can an Employee Receive Gratuity?

Gratuity can be received under several situations

• Upon voluntary retirement.
  
• After resignation from the company.
  
• Due to permanent disability or death.
  

In cases where an employee passes away, the gratuity amount is directed to their nominated family member or legal heir, providing a financial safety net for the family.

How is Gratuity Calculated?

Gratuity calculations are based on two main factors

Last-drawn Basic Salary and Dearness Allowance (DA): These determine the gratuity amount, making a higher salary directly proportional to a larger gratuity.

Years of Service: This includes full years of service; any remaining months are typically rounded off if they exceed six months.

Gratuity Formula Explained

The gratuity calculation formula is

The gratuity calculation formula is based on your last drawn basic salary and years of service, using a multiplier of 15/26. Here, the “15” represents 15 days' worth of wages paid per year of service, while “26” stands for the approximate number of working days in a month, assuming weekends are non-working days.

In other words, gratuity = (Last Drawn Salary × Years of Service × 15) ÷ 26.

In this formula

• 15 signifies the 15 days’ wages earned each year (as prescribed under the Gratuity Act).
  
• 26 accounts for a month with 30 days, excluding Sundays.
  

Example Calculation
For instance, if an employee’s last-drawn basic salary was ₹45,000 and they completed six years of service, their gratuity amount would be ₹1,55,769

This straightforward formula helps employees estimate their gratuity based on tenure and salary at the time of exit, making it easy to plan finances during transitions.

FAQs on Gratuity

• Can employers opt out of paying gratuity?
  No, any organisation that qualifies under the Gratuity Act is required to pay gratuity, and this obligation cannot be waived.
  
• Is gratuity taxable?
  

Gratuity received by government employees is tax-free. However, for other employees, it is exempt up to a certain limit as per current tax laws, making it a tax-efficient benefit.

How to apply for gratuity?
Generally, employees need to fill out a gratuity application form and submit it to the employer, who then processes the payment. Employers, as per law, are required to disburse the gratuity amount within 30 days of the employee leaving the company.

Making the Most of Your Gratuity Benefits
Gratuity can be a substantial amount if you’ve spent years with an organisation. Understanding your rights and eligibility allows you to ensure you’re properly compensated as you transition out of a job. For organisations, it’s a way to show appreciation and build long-term loyalty among their employees, supporting their financial well-being even after their tenure ends.