The Gratuity Act in India is a social security legislation that provides financial benefits to employees as a token of appreciation for their continuous service to an organization. The payment made under this act is called "gratuity." It is a form of retirement benefit or financial support given to employees after they complete a certain period of service with their employer.
Meaning of Gratuity:
Gratuity is a lump sum amount paid by an employer to an employee as a gesture of gratitude for the services rendered by the employee. It is typically provided at the time of retirement, resignation, termination, or death of the employee.
Gratuity Formula:
The gratuity amount is calculated using a specific formula as outlined in the Payment of Gratuity Act, 1972, which applies to all establishments having 10 or more employees. The formula for calculating gratuity is as follows:
Gratuity = (Last drawn salary * 15/26) * (Number of completed years of service)
In this formula:
"Last drawn salary" refers to the basic salary plus dearness allowance that the employee was receiving.
15/26 is a factor representing 15 days out of a total of 26 working days in a month.
"Number of completed years of service" is the total number of years the employee has worked for the employer.
Gratuity Eligibility:
To be eligible for gratuity under the Payment of Gratuity Act, an employee must meet the following criteria:
The employee must have worked for a minimum of 5 years with the same employer. However, this requirement is waived in case of death or disablement of the employee.
The gratuity law applies to establishments with 10 or more employees. Hence, the organization must have at least 10 employees to fall under the purview of this act.
The employee must be retiring, resigning, being terminated, or in the case of death or disablement, for the gratuity to be applicable.
It's important to note that gratuity is subject to a maximum limit of Rs. 20 lakh under the Gratuity Act, as per the latest revision. This means that even if the calculated gratuity amount exceeds Rs. 20 lakh, the maximum payable amount will be capped at this limit.
The rules and regulations surrounding gratuity can vary, and it's advisable to refer to the most recent and relevant sources, including the official government websites, for accurate and up-to-date information.
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