What is Gratuity? #
Gratuity is one of the settlement benefits, which is paid by employers to the employee at the time of his/her retirement from the organization. The gratuity amount is paid as gratitude for the services rendered by the employee during the period of employment. Gratuity is payable to a person on resignation, termination, retirement, death, or disablement due to accident or disease. Normally, gratuity is payable only after an employee completes five years of continuous service and in some cases, death and disablement of the employee, the condition of a minimum of 5 years of service is not applicable.
Is gratuity applicable to all companies? #
Gratuity applies to every factory, mine, plantation, port, motor transport undertakings, club, chamber of commerce and associations, local bodies, solicitor’s offices, every shop, and establishment where 10 or more persons are employed or were employed on any day in the preceding 12 months. Employee refers to any person employed as a worker as well as persons employed in an administrative and managerial capacity and does not include apprentices, trainees, and any Central/State Government employee.
How is gratuity calculated? #
According to the Payment of Gratuity Act, of 1972, firms with a workforce of 10 or more employees will come under this Act. Gratuity is calculated as per the following formula. 15 Days* last drawn basic salary with DA /26 Days * no of years at service.