Gratuity is a financial award given to employees for their long service and loyalty. It is like a special gift for employees who serve their services for at least five years in a company. Whether you work in a private company or in the government sector, this amount helps to secure your future.
But do you know what are the rules of Gratuity and how is it calculated? Come, in this article, we explain every important information to gratuity in an easy and interesting way, so that you can know the right results of your hard work.
What is gratuity and who can take it?
Gratuity is a type of financial advantage that an employee gets when working in a company for a long time, leaving a job or retiring. Under the Gratuity Act 1972 in India, this rule applies to companies where 10 or more employees work.
This includes not only government and private companies, but shops, factories and other establishments also come under its purview. But there is a condition – the employee needs to work in the same company for at least 5 years.
Suppose, you worked hard in a company for 20 years and are now planning to retire. In such a situation, you can get a thick amount in the form of Gratuity Amount, which can strengthen your future plans.
But if your company does not register under the Gratuity Act, then the Gratuity Payment depends on the policies of the company. Therefore, it is necessary to check whether your company comes under this act before leaving the job.
Minimum service period for gratuity
In India, minimum 5 -year service is mandatory for Gratuity in India. But a special rule is that if you have worked for 4 years 8 months, then it will be considered 5 years, and you will be entitled to gratuity. At the same time, if you worked for 4 years 7 months, then it will be counted 4 years, and you will not be able to take gratuity. Notice period is also included in your total job period, which can be beneficial for you.
Gratuity under special circumstances
What if an employee leaves the world before retirement or leaving a job? In such a situation, under the Gratuity Act, the company will have to pay gratuity to the employee’s nominee. The special thing is that in this case the rule of minimum service period of 5 years does not apply. This provision is designed to provide financial security to the employee’s family.
How to calculate gratuity?
The formula of Gratuity Calculation is very simple: (last basic salary) × (job duration) × (15/26). Here 15/26 is used because 26 are considered to be 26 working days except Sunday (week off). Come, let’s understand it with an example.
Suppose, your last basic salary is Rs 50,000 and you have worked in the company for 20 years. Now to remove Gratuity Amount:
Basic Salary × Job duration = 50,000 × 20 = 10,00,000
(10,00,000 × 15/26) = 5,76,923 rupees
This means that you will get a gratuity of about 5.76 lakh rupees. But note, in private companies, employees do not get dearness allowance (DA), so only basic salary is used in calculations. If your total salary is Rs 50,000, but the basic salary is Rs 25,000, then the calculation will be as follows:
Basic salary × job duration = 25,000 × 20 = 5,00,000
(5,00,000 × 15/26) = 2,88,461 rupees
Role of companies and rights of employees
Many companies decide the gratuity amount for their employees in advance, which makes it easier for the employees to guess how much they will get. But if your company does not have a raster under the Gratuity Act, then you may have to depend on the policies of the company. Therefore, before starting the job, make sure whether your company follows the rules of gratuity.
Benefits and importance of gratuity
Gratuity not only ensures financial security of employees, but it is also an honor for their hard work and loyalty. This amount can help fulfill your dreams after retirement or leave a job, such as starting a new business, children’s education, or buying a house. Therefore, understand your rights and use Gratuity Amount correctly.