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Gratuity: Calculation and Conditions to Know

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Gratuity is an important part of your total compensation when calculating your net salary. In many countries, gratuity is a part of a worker’s total compensation during their tenure with a company. It refers to the money an employee receives from his employer after serving for a certain amount of time. This can be calculated based on either the number of years of service or the number of days based on their daily wages.


Gratuity Calculator

Gratuity is considered a form of retirement benefit and is usually paid to employees after they have reached a certain age. But, if you are working in an organization where gratuity is applicable, you should know that there’s no such thing as 100% gratuity. Instead, the amount you receive is based on the number of days and hours you have worked for your employer.

Gratuity calculator and formula can help you determine how much money you should save every month to fund a luxurious retirement when the time comes.

The gratuity amount is calculated according to the following formula: 

Gratuity Amount = Last Drawn Salary * 15/26 * No. of Completed Years of Service

Using this gratuity calculator, you can quickly determine the gratuity amount you should receive from your company.

For instance: Assume-

  • You have been working for ten years with your company.
  • Your last drawn salary is Rs 100,000.00 per month
  • Your Gratuity calculation will be based on the 15/26 formula under the Payment of Gratuity Act 1972.

The gratuity calculator helps you determine that your gratuity amount, or pension benefit, is Rs 3,91,177.00 (100,000 * 15/26 * 10). Thus, you need to set aside a certain amount of money from your monthly income to save for retirement.

It’s never too early to start planning for your retirement. Use this gratuity calculator to find out how much money you should consider saving every month so that you can enjoy a luxurious retirement when the time comes.


Conditions for Gratuity Benefits

The Payment of Gratuity Act,1972 has been enacted to provide for the payment of gratuity to an employee who retires or ceases to be in service or is superannuated or dies while in service.

The amount of Gratuity payable under the Act is 15 days’ wages for each year of completed services reckoned in accordance with the provisions of the Act. Under the Act, an employer is required to pay gratuity to his employee if he has put in continuous service of not less than five years.

The Act applies only to those establishments with ten or more persons. Employer includes a person who employs a domestic servant and any company as defined under Section 2(24) of the Companies Act 1956. An employee is entitled to receive gratuity benefits only when they meet the following conditions.

  • Put in continuous service of not less than five years in a single establishment
  • Wages not less than Rs.1200 per month from 01/01/1983. The multiplication factor for this purpose is 2.57 with effect from 01/04/1984 and 3 with effect from 01/04-1988.
  • Not been dismissed or removed or discharged from service for any willful breach of discipline or misconduct.
  • Completed at least one year’s service before retiring, superannuation, death in service, or attaining retirement age.

A Government servant who is superannuated or dies in service is entitled to gratuity.

The period of leave on full pay counts as a completed year towards the qualifying period for gratuity benefits if such leave does not exceed three months, and it is allowed at a time after he has put in continuous service of not less than five years.

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