What is Gratuity?
Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for the services rendered. It is governed by the Payment of Gratuity Act, 1972 in India.
Eligibility
An employee is eligible for gratuity only after completing 5 years of continuous service with the same employer. However, this condition is not applicable in cases of death or disablement.
How is Gratuity Calculated?
For employees covered under the Gratuity Act, the formula is:
Gratuity = (15 * Last Drawn Salary * Years of Service) / 26
- 15 represents 15 days of wages for each year of service.
- Last Drawn Salary = Basic Salary + Dearness Allowance (DA).
- 26 represents the number of working days in a month.
- Years of service greater than 6 months is rounded off to the next year.
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