A Gratuity is a designed to help individuals, typically employees, calculate the gratuity amount they are eligible to receive when they leave a company or retire. Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for their services, typically after they have worked with the company for a certain number of years.
The gratuity amount is often based on an employee's basic salary, excluding allowances or bonuses. This is typically the amount the employee is entitled to before any deductions, taxes, or other benefits. The number of years the employee has worked with the company. Gratuity pay usually increases with the length of service, with specific thresholds often triggering different gratuity rates.
The formula for Gratuity:
Last Drawn Salary The total basic salary and dearness allowance (DA) received by the employee at the time of leaving the company.
Years of Service: The total number of years the employee worked with the employer. If the employee worked for a period exceeding six months, the fraction is rounded up to a full year.
15 This represents 15 days of salary for each year of service. This is a standard provided by the Payment of Gratuity Act, 1972.
26 The number of working days in a month, based on the standard calculation that assumes a 5-day workweek (with 26 working days in a month on average).