Gratuity Calculation: What will be your gratuity on Rs 40,000 last-drawn basic salary and 6.3 years of service?
Under the Payment of Gratuity Act of 1972, employees are entitled to receive gratuity after completing 5 years of continuous service with an employer. On that note, go through the details below to find out what your gratuity amount will be on Rs 40,000 as a last-drawn basic salary, and 6.3 years of service.
Gratuity is a lump sum given to an employee as a token of appreciation for their long-term service. To get gratuity, you need 5 years of continuous service. Any service period of 6 months or more is counted as a full year. Organisations employing 10 or more individuals over the past years and following the Payment of Gratuity Act, 1972, are required to pay gratuity. Therefore, let’s find out what your gratuity amount will be if your service period is 6.3 years and your last drawn basic salary is Rs 40,000.
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(Disclaimer: Our calculations are projections and not investment advice. Do you own due diligence or consult an expert for financial planning)
Understanding gratuity
Gratuity is an amount given to an employee as a token of appreciation for their long-term service. It is a type of reward for an employee's dedication and loyalty for a continuous service of 5 years.
What is an ideal length of service for gratuity?
Employees are eligible for gratuity after completing 5 years of continuous service with the same employer, as per the Payment of Gratuity Act, 1972.
Who is eligible to receive gratuity?
To get gratuity, employees need:
1. 5 years of continuous service
2. Work in an organization covered by the Payment of Gratuity Act, 1972.
When do you become eligible for gratuity?
You can get gratuity in the following situations:
When you retire from your job
If you quit after working for the same company for 5 years
If you die or become disabled due to illness or accident while working
When you're eligible for superannuation (a type of retirement benefit)
What are the organizational criteria for gratuity?
Organisations employing 10 or more individuals over the past years and following the Payment of Gratuity Act, 1972, are required to pay gratuity.
How are service years counted for gratuity calculation?
To get gratuity, you need 5 years of continuous service. Any service period of 6 months or more is counted as a full year.
What decides the gratuity amount?
The number of years and the last-drawn basic salary of an employee are used to calculate the gratuity amount.
Can a company opt out of the Payment of Gratuity Act?
If a company falls under the Payment of Gratuity Act of 1972, it cannot count itself out.
What is the formula to calculate gratuity amount?
(Last Drawn Salary x Number of Years of Service) X 15/26
Here, 15 refers to 15 days’ wages per year, and 26 refers to 30 days in a month, excluding Sundays.
What will be your gratuity on a Rs 40,000 basic salary for 6.3 years of service?
Let’s calculate gratuity for an employee with a basic salary of Rs 40,000, 6 years, and 3 months of service (rounded to 6 years).
Gratuity = (40,000 × 6 × 15) ÷ 26
Gratuity = Rs 1,38,461