Introduction
Gratuity is the
payment made by the employer to his ex- employee for his past services.
Gratuity is similar to a gift given by employer for appreciation of past
services of his employee . The technical definition of gratuity given by ICAI
is “gratuity is a voluntary payment made by an employer in
appreciation of services rendered by employee .
Who is eligible for Gratuity ?
As per Payment of
Gratuity Act 1972, any employee who has been in continuous service
for 5 years is eligible for
gratuity .
During the above
mentioned 5 years , employee is eligible for casual leave and sick leave
without affecting his eligibility.
In case of death of
an employee , the above condition 5 Years of continuous service is not
applicable i.e. even if an
employee dies
after 2 years of
service , he/she is still eligible for gratuity .
How is gratuity calculated? Gratuity calculation formula for employees receiving monthly salary (15/26) * Last Salary Drawn * Completed years of service
When calculating completed
years of service , if an employee
worked for more than 6 months , it will be considered as full year .
Example : Employee
worked for 14 years and 7 month , then completed years of service = 15 years
Example: Employee
worked for 14 years and 5 months ,then completed years of service = 14 years
Example: Employee
worked for 14 years and 6 months, then completed years of service = 14 years
Last salary drawn =
basic salary + dearness allowance
Maximum Amount of Gratuity
The amount of gratuity cannot
exceed Rs 10,00,000 (10 lacs) . Even if it exceeds , maximum
amount payable by employer shall be Rs 10,00,000/-
When is Gratuity Payable ?
Gratuity is Payable on
employee’s Supernnuation , Retirement Or death (whichever is earlier).
