Gratuity Calculator

What are your retirement plans? Are you banking on your gratuity amount to enjoy post-retirement life? Estimate how much you will get with the online gratuity calculator.

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What is Gratuity?

A Gratuity is an amount that an employee receives from their employer in return for the services they offered to the company. The companies express their gratitude towards their employees for their services by offering them a gratuity payment. A company only provides the gratuity payment to those employees who have worked in the company for five years or more. This overall payment process is governed under the Payment of Gratuity Act 1972. The maximum amount for a gratuity payment is at Rs.10 lakhs. Whereas, if the amount exceeds the limit, it is then treated as ex-gratia.

An employer might pay gratuity to their employees either from their own pockets or take a group gratuity plan from an insurance provider. They then pay the insurance provider with annual contributions. Usually, the insurance company paid for gratuity based on the clauses included under the group insurance plan. Unlike the provident fund, the employer must pay for the gratuity amount completely since there will be no employee contribution in it.

The Indian Government passed the Payment of Gratuity Act, 1972 covering employees involved in industries such as factories, plantations, ports, mines, oil fields, or any other similar establishments employed with over 10 or more people.

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Gratuity Eligibility Criteria

There are various instances when an employee becomes eligible for gratuity payment. Some of them are mentioned below:

  • When the employee is eligible for pension funds or superannuation.
  • When the employee leaves the organization after working there for 5 years.
  • When the employee retires.
  • When the employee suffers any sudden disability due to an accident or a severe illness.
  • When the employee dies.
  • During the death of an employee, the gratuity amount is paid to their nominee. The nominee shall be their heirs. If the heir is a minor, then the payable amount is deposited in a bank or a financial institution with the controlling authority who shall then invest the paid amount for the benefit of the minor. This shall be the case until the heir becomes an eligible major.

    For a dead male employee, the family in relation shall be considered their nominee. His wife, his children, his dependent parents, or his wife’s dependent parents, etc shall be considered the nominee.

    Similarly, if the employee is a female, then her family includes her husband, children, the dependent parents, the dependent in-laws, etc. If in case, the employee had legally adopted a child, then the child will also be considered as a family member. However, if the employee’s child has been adopted by someone else, then, in that case, that child will not be considered as the employee’s family member.

    Benefits of the Payment of Gratuity Act, 1972 for the employees

    Employees are benefited immensely from the Payment of Gratuity Act. The benefits are as follows:

  • According to the act, an employee can nominate their family member at the time of joining your company for gratuity and other benefits. This will help the family member receive the payable amount even after the demise of the employee.
  • Based on the grounds under the act, the company must pay the gratuity payable to the employee even when the company is making a loss.
  • The employer’s maximum cap for gratuity is Rs.10 lakhs. This allows many employees to be generously paid their gratuity. The company can provide more than Rs.10 lakhs but it will no longer be included as a factor for tax exemption.
  • Any employee who has worked in the organisation for exactly five years or more than five years becomes entitled to receive gratuity. Hence the employers can expect more employees to continue their tenure within the company for more than 5 years.
  • Checklist of Inspections under the Payment of Gratuity Act,1972

    The government of India conducts the following inspections to ensure the rules and regulations of the Payment of Gratuity Act,1972 is complied with:

  • It inspects the establishment to check whether it is registered under the provisions of the act. The registration must be done with the concerned Assistant Commissioner of Labour.
  • Secondly, it checks whether the employer has informed the controlling authority with the notice of opening, changing, or closing of the case.
  • Thirdly, it inspects and ensures that an abstract of both Act and its rules are displayed.
  • Furthermore, it checks whether the employee’s nominations are accepted by the employee.
  • It also confirms whether a copy of the notice explaining the gratuity claim’s admissibility or non-admissibility is shared with the controlling authority.
  • It also ensures to be informed of any accident or death that happened in the previous year.
  • Also, if in case of any law violations, it also checks and verifies the nature of the violation.
  • How to Calculate Gratuity?

    Every firm uses the gratuity calculator with a predetermined gratuity formula for finding the gratuity payable amount. One can use the gratuity calculator online to find their gratuity sum. The gratuity payable amount can be calculated using the following gratuity formula

    Gratuity Amount = n*b*15/26

    Here n is the service tenure period completed within the company;

    b is the sum of the basic salary (last drawn) + dearness allowance; 15 days is considered for the basic pay allowance and according to this calculation, a month has 26 days only.

    Let us imagine a person A worked with a company XXX for 10 years. The basic salary (last drawn) and the dearness allowance sum up to Rs.20000. Substituting the same values in the gratuity calculation formula will produce us the following result.

    The gratuity amount will be = 10*20000*15/26 = Rs.1,15,385

    Here, if the last few months of the tenure is more than 6 months from the previous year of employment, then “n” is rounded off to the next number. For example, if the employment tenure is 8 years 8 months, then “n” will be 9 years. Similarly, if the employment tenure is 8 years and 2 months, then “n” will be 8 years only.

    Calculating the gratuity amount for the employees who are not covered under the Act.

    Those who are not covered under the Act can also use gratuity calculator India available online to calculate their gratuity amount. Here the number of working days is considered as 30 and not 26 days.

    Gratuity Formula = n*b*15/30

    Considering the same above mentioned values,

    Gratuity Amount = 10*20000*15/30

    Gratuity Amount = Rs.1,00,000 (1 lakh rupees)

    Calculating the gratuity after the death of an employee will involve the following steps and formula:

    If an employee has passed away, the gratuity benefit is then calculated not using the gratuity amount calculator but based on the total service tenure of the employee. The maximum amount cap is Rs.20 lakhs in such cases. There are different types of gratuity rates calculation depending on the size of the tenure.

    Tenure of ServiceGratuity Payable
    Less than a yearTwice the Basic salary (2 x Basic salary)
    Less than a yearTwice the Basic salary (2 x Basic salary)
    More than or equal to 1 year but less than 5 years6 times the basic salary (6 x Basic salary)
    More than or equal to 11 years but less than 20 yearsTwenty times the basic salary (20 x Basic salary)
    More than or equal to 20 years½ x basic salary for each of the completed six-month period. However, the value can’t be more than 33 times the basic salary.

    Documents or Forms Related to Gratuity:

    The different forms that are relating to gratuity are as follows:

  • Form A for Notice of Opening
  • Form B for Notice of Change
  • Form C for Notice of Closure
  • Form D for Notice for excluding husband from a family
  • Form E for Notice of withdrawal of notice for excluding husband from a family
  • Form F for Nomination
  • Form G for Fresh Nomination
  • Form H for Modification or Nomination
  • Form I for Application of gratuity by an employee
  • Form J for Application for gratuity by a nominee
  • Form K for Application for gratuity by a legal heir
  • Form L for Notice for payment of gratuity
  • Form M for Notice rejecting a claim for payment of gratuity
  • Form N for Application for direction
  • Form O for Notice for appearance before the controlling authority
  • Form P for Summons
  • Form Q for Particulars of an application under section 7
  • Form R for Notice for payment of Gratuity
  • Form S for Notice for Payment of Gratuity as determined by Appellate Authority
  • Form T for Application for recovery of gratuity
  • Form U for Abstract of the Act and Gratuity Rules
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