When you work for an organization with dedication, you expect your employer to pay you back in one way or another for your hard work and loyalty. Gratuity amount is one of those ways. If you’re close to retiring from your work life, you can use gratuity calculators online to figure out how much gratuity amount you can receive upon your retirement. As long as you have worked for the company for at least five years, you are entitled to receive the gratuity amount under the Gratuity Act. In this article, we will show you what the gratuity amount is and how you can calculate it. We will also show you the gratuity calculation formula and gratuity calculation examples so you can understand them. Now let’s look at this in more detail.
What is a Gratuity Calculator?
A gratuity calculator can help any individual calculate how much gratuity money people can receive when they leave their jobs. For corporate professionals who are planning to retire from their job, this calculator is a pretty helpful tool. This calculator works with a specific formula, which requires an individual to enter a few inputs to get an accurate estimation of the gratuity amount.
The calculator uses several factors like the total number of years a person has served a company, the individual’s monthly salary, and other allowances. It’s straightforward, free to use, and gives results within seconds. This allows you to avoid all the head-ache-inducing manual calculations and plan your retirement with a peaceful mind.
What is Gratuity in India?
Before we explain anything else about the gratuity calculator in India, you need to understand what gratuity is. In simple words, gratuity is a monetary benefit every corporate employee gets in a lump sum when they plan to retire from their working life. In short, with a gratuity amount, the company shows its gratitude to the employee for his/her years of service and hard work.
According to the Payment of Gratuity Act of 1972, any employee who can fulfill a few specific requirements is eligible to receive a gratuity amount from his/her company. For example, an employee must work for the company for at least five years without an employment break in between to be eligible to receive the gratuity amount. We will talk about the eligibility criteria later in this article.
All the rules for receiving or granting a gratuity amount have been prescribed by The Payment of Gratuity Act 1972. The rules made clear distinctions between the employees who fall under the rule and the employees who don’t. It has also stated which types of businesses or organizations have to follow the Act to give out proper gratuity. It even states the gratuity formula for proper calculations. You can check the Gratuity Act for more information.
Eligibility Criteria for Receiving Gratuity Amount
To be able to receive a gratuity amount from their organizations, the employees need to fulfill the following eligibility criteria:
- The employee has to be eligible for superannuation.
- The individual must not have more than one full-time employer.
- An employee must work for a certain organization for at least five years continuously before retiring from the job.
- The employee has to retire from his/her service.
- If the employee suffers a severe disability or passes away because of an accident or illness, the 5-year continuous work criteria can be eliminated.
As we have mentioned before, the gratuity calculators follow the gratuity formula specifically prescribed in the Payment of Gratuity Act of 1972. Please note that the Gratuity Act has divided employees into two different categories. And each category has a similar yet different gratuity calculation formula.
The classifications are:
- Category #1: Employees who are covered by the Act
- Category #2: Employees who aren’t covered by the Act
Before we move any further, let’s take a look at the general gratuity calculation formula that is used by most calculators.
The formula is:
G = N * B * 15 /26
In this gratuity calculator formula,
G = The gratuity amount
N = The number of years an employee has worked in his/her company.
B = The basic monthly salary received in the last month before retirement, including the dearness allowances and the commissions received from sales.
Now, let’s see how the gratuity amount is calculated for each of the employee categories.
Category #1: Employees Who are Covered Under the Gratuity Act
If an employee is covered under the gratuity act, the gratuity formula will be:
G = N * B * 15 / 26
Let’s say Mr. Ramesh has been working for XYZ Pvt. Ltd for the last 11 years and four months. And today, he will be retired from this work.
If his last salary slip, along with commissions, amounts to Rs. 90,000, he is eligible to receive the following gratuity amount:
G = 90,000 * 11 * 15/26 = Rs. 5.71 lakhs
Here, since Mr. Ramesh has worked for less than six months after his 11th year of employment, N = 11.
Category #2: Employees Who aren’t Covered Under the Gratuity Act
If an individual is working for a company that is not covered under the Gratuity Act, the individual is still eligible to get a gratuity amount after his/her retirement. However, in this case, the gratuity calculator formula is:
G = N * B * 15 / 30
Let’s say Mrs. Malhotra worked for ABC Enterprise for 11 years and 8 months before applying for retirement.
If her salary slip, along with commissions, amounts to Rs. 1 lakh, she is eligible to receive the following gratuity amount:
G = 1,00,000 * 12 * 15 / 30 = Rs. 6 lakhs
Here, since Mrs. Malhotra has worked for more than six months after her 11th year of employment, N = 12.
The gratuity amount paid by the employers can be a great morale boost for the employees who are retiring from their service life. Plus, if an employee passes away from illness or accident or becomes disabled, this gratuity amount can turn out to be an important financial support for the employee’s family. To make sure you receive the right gratuity amount, you can use online gratuity calculators. They are fast, accurate, and easy to use, making them an essential tool not only for employees but for employers as well.