Do You Know These Gratuity Facts?

Companies that give importance to employee benefits and offer them always stand out in the crowd. Such firms even attract and retain talented employees. By providing employee benefits a firm shows its employees that they are not just investing in their present life but also their future. It is no news that every employee out there wants to work with an organization that assures them various benefits in the long run. One of the many benefits employees look forward to is gratuity. 

Gratuity is a well-known employee benefit in India. Although it is so popular, a good number of employees still have one or another doubt regarding it. Now, if you are one of them, do not worry, you have certainly landed up at the right place. 

In this article, we will tell you everything related to gratuity, from its eligibility to the gratuity calculation formula and clear all your doubts as well. So, let’s dive in. 

Meaning

It is a sum of money given to a working individual as a token of appreciation for his or her commitment and hard work during the employment period. 

Calculation 

Many people out there assume that calculating gratuity is challenging. However, it is not true. Truth be told, gratuity calculation is the easiest math. All you need to know is its correct formula. 

Take a look at the gratuity calculation formula: 

15 * LDS* WT / 30

Here, LDS stands for last drawn salary 

WT stands for total employment time 

Now, let’s understand this formula using a simple example. 

Joel receives a basic salary of INR 50k every month. He completed a service period of 6 years with XYZ company. So, he will receive the below-mentioned gratuity payment: 

15 * 50,000* 6/ 30= INR 1,50,000

Also, people who do not want to do this much maths can rely on online gratuity calculators that make the whole process easier and faster. You just need to put the asked details and it will calculate your gratuity amount in just a matter of seconds. 

Eligibility (For Companies)

Every central and state govt departments, defense and local governing bodies are liable to provide their employees this employee benefit. In addition to this, every private firm with a headcount of ten employees must provide gratuity payment to their workforce. Also, if their total strength goes below ten along the way, they will still have to make the payment.

Eligibility (For Employees)

Your association with an organization doesn’t make you eligible for this benefit. As per the gratuity laws, every employee who works with a firm for five years or more is legally considered eligible for gratuity payment. 

Power of Employers 

Even if an individual meets all the aforementioned conditions, employers can sometimes say no to gratuity payments. 

Here are some of the valid conditions due to which companies can refuse to pay this employee benefit: 

  • If s/he was terminated from his or her position due to an illegal reason 
  • If s/he was terminated from his or her position after any misbehavior or riotous conduct 

Difference b/w Gratuity and PF 

This is one of the common doubts. 

PF and gratuity are two different employee benefits. PF includes the contribution of both employees as well as employers whereas gratuity is given by the company. From eligibility criteria to withdrawing conditions, there is nothing that makes these employee benefits similar or the same. 

Key Points 

  • Remember, no organization in India can refuse gratuity payment to a working individual due to bankruptcy. 
  • According to the Income-tax Act, 1961, the gratuity amount is exempted from tax up to a particular limit.
  • Every employer is liable to make this payment within thirty days. 

That’s it. 

There is more to it but we have only discussed the top facts about gratuity here. We hope this article helped you to understand and learn new things about this employee benefit. If yes, do not forget to share these learnings with your colleagues and clear their doubts too.

Raju Shahi

Raju Shahi is a tech blogger and digital marketer with several years of experience in the industry. He likes to help businesses stay informed and up to date with established and emerging technologies like SAP Business One, IoT, AI, Cloud, and others...