Gratuity explained in detail?

Gratuity is a lump sum collection of money which is being given to the employees by the employer of their company. The gratuity is provided to the employee while they leave their job or at the time of their retirement. This gratuity stands for the recognition of the service of the employees. Companies which have a population of more than 10 employees are eligible for providing gratuity to the employees. To be precise, it is mandate for these companies to pay gratuity to their employees. The amount of gratuity for an employee is calculated according to the basic salary and the time period of their service. The gratuity calculation varies from employee to employee.

Salary for the calculation of gratuity:
 Bonus, HRA, reimbursements , special allowances are never taken into account while calculating the gratuity.  Basic Salary and dearness allowance (if any) are the only components of your salary which are taken for the calculation of your gratuity amount. This contributes to be the reason why the basic salaries of employees are kept the lowest.

Time period of service for the payment of gratuity:
The amount of your gratuity payment increases with the more number of time period you spent in the company. However to become eligible to get the gratuity amount, it is mandatory that a employee has completed services in the organization for a time period of more than 4 years 6 months. The number of service years are taken approximately to the nearest figure while calculating gratuity. Thus if the employee has completed 6 years and 6 months in the company, the length of service for the calculation of gratuity will be 7 years.

Formula for the calculation of gratuity:
 The rules for gratuity states that you must be getting the salary of 15 days for each completed year. Thus as you complete 5 yars in the service, you should be getting the gratuity of one day salary*15*5. The number of days taken into account for calculating the salary would be 26 days, since the employees are having weekly offs as well. Thus the average working days of the employee while calculating the gratuity should not be more than 26 days. Hence one day salary is calculated by salary of a monh divided by 26.
So the formula for gratuity is
Gratuity = number of years *15/26*monthly salary


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