Gratuity: Here’s all you need to know

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Gratuity refers to the amount of money paid to an employee at the time of leaving the company as a token of appreciation for services rendered. But there are certain conditions which the employee needs to fulfil in order to get the gratuity amount. Here is a lowdown on all you need to about gratuity.

Eligibility for gratuity

At the time of leaving, the company pays gratuity to an employee if he has been in uninterrupted service for five years or more. The employee should be working for at least 190 days in a firm which works less than 6-days a week. Tax-free limit for gratuity was hiked to Rs 20 lakh from Rs 10 lakh in 2019.

Apprenticeship and internship roles do not entitle you to gratuity. If there was a break in your services, then that particular time is also deducted from the payment of gratuity.

Calculate your gratuity amount

Gratuity calculation differs for monthly, piece related, and seasonal employees.

For employees covered under the Payment of Gratuity Act, gratuity is calculated based on 15 days of last drawn salary for each completed year of service. If an employee shows more than six months of service in a year, then the whole year is counted for gratuity. For the purpose of calculation, allowances other than Basic + Dearness Allowance ( D.A) is not considered.

Formula: Gratuity for salaried employees = (Basic + D.A x 15/26) x No. of years of service rendered

Gratuity of piece rated employee is calculated by taking into consideration average of the last 3 months of service before retirement or termination.

Formula for piece rates employees: Gratuity for Piece employees = (Average of last 3 months salary x 15/26 ) x No. of years services rendered

For seasonal employees, instead of 15 days only 7 days are taken into consideration for calculation of gratuity and is multiplied by the number of seasons worked in lieu to number of years. Rest of the calculation is same as monthly rated employee.

Formula for seasonal employees: Gratuity for monthly employees = (Basic + D.A x 7/26) x No. of seasons