Under the Payment of Gratuity Act 1972, Gratuity is a sum of money paid by an employer to their employee for services rendered in the company for five or more years.
Gratuity is offered to employees for recognizing their services and can be considered as a benefit to aid employees after his/her retirement.
Gratuity cannot be credited as such, it is credited based on some rules and regulations defined by the central government. There are certain criteria that need to be fulfilled(either of them) by employees to be eligible to receive gratuity benefits :
As per the Payment of Gratuity Act, factories- mines, oil fields, plantations, ports, railways, motor transport undertakings, companies, and to shops and other establishments, Employing 10 or more workmen are liable to pay gratuity amount to their employees.
Other eligibility criteria are as follows:
Calculating gratuity is not at all a difficult task. You only need to put a few values in the formula and you are done.
To calculate the gratuity of an employee, the following formula can be used:
N= number of years of service in a company
B= last drawn Basic Salary+ Dearness Allowance
An employee has worked in a company for 10 years and received Rs. 30,000 as his basic salary including dearness allowance, then,
In the above formula, if an employee served more than 6 months in the previous year then it will be rounded off to the next number, and if less than 6 months then it will be rounded off to the lower number.
Few exceptional points:
Taxation Rules for Gratuity
Taxation rules depend on the type of employee who has received gratuity:
These taxation rules are defined by the Central government and one can go through the detailed description on the official website.
The employer holds the right to forfeit the gratuity of an employee either wholly or partially in case:
Automate Gratuity Payment
The importance of gratuity cannot be overlooked either by the employee or employer. To make your employees feel more valued, you must consider paying gratuity amounts to your employees when they are eligible for the same.
You can either calculate gratuity with a gratuity calculator or install HRMS software to your system for auto calculation and credit of gratuity amount as and when required. HRMS software offer options to pre-define the free gratuity limit, tenure for gratuity applicability, criteria for gratuity round off and much more. This software eases your gratuity-related functions and helps you increase the retention rate of employees.