Actually we are calculating gratuity for basic @4.81%. Is that correct means that 4.81% means what and why it is 4.81%. Are there any legal acts regarding gratuity calculations?
From India, Bengaluru
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From India, Bengaluru
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Mr. Aravindh Thamaraiselvan,
Please go through the Payment of Gratuity Act 1972. The Act is 49 years old.
An Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments and for matters connected therewith or incidental.
From India, Madras
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302Please go through the Payment of Gratuity Act 1972. The Act is 49 years old.
An Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments and for matters connected therewith or incidental.
From India, Madras
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Dear Friend,
As per the Payment of Gratuity Act 1972, 4 years and 240 days of regular service are mandatory. If an employee serves an establishment for 4 years and 240 days, they can claim the gratuity.
The calculation of gratuity for an eligible employee of an organization or establishment is as follows:
Basic Salary or wage/26*15*number of completed years of service
The percentage you have mentioned amounts to 4.81% of the basic salary/wages per month.
From India, Gurgaon
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As per the Payment of Gratuity Act 1972, 4 years and 240 days of regular service are mandatory. If an employee serves an establishment for 4 years and 240 days, they can claim the gratuity.
The calculation of gratuity for an eligible employee of an organization or establishment is as follows:
Basic Salary or wage/26*15*number of completed years of service
The percentage you have mentioned amounts to 4.81% of the basic salary/wages per month.
From India, Gurgaon
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Dear Colleague,
Rightly said and viewed by our colleagues. Kindly have a reading on the below points in addition to it:
The Act governing the payment of Gratuity is the Payment of Gratuity Act 1972. Nowhere in the Act is a percentage mentioned, and 4.81% is not specified. The Act clearly states, "For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned." This is as per Section 4 of the Act. Wages are defined below as reproduced under section 2(s). Kindly have a reading.
Initially, several years ago, there was no Cost to Company (CTC) concept. We used to calculate gratuity based on 15 days' wages for every completed year for eligible employees. Later, as the industry embraced the CTC concept, every cost was converted to a percentage, including contributions under each bucket like PF, ESI, leave wages, gratuity, and so on. Thus, the 15 days of wages are equal to approximately 4.81%, as indicated in the CTC Sheet. When the actual disbursement of gratuity is settled, we need to follow the calculation of 15 days' wages for every completed year of service. Hope this clarifies.
Kindly review the provisions of the Payment of Gratuity Act 1972, which is a simple and short Act.
Wages:
2(s) "wages" means all emoluments earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment, paid or payable in cash, including dearness allowance but excluding bonus, commission, house rent allowance, overtime wages, and any other allowance.
Section 4 Payment of Gratuity Act 1972:
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.
Provided further that in the case of the employee's death, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs. If any such nominee or heir is a minor, the minor's share shall be deposited with the controlling authority for investment until the minor attains majority.
Explanation: Disablement means incapacitation for the work the employee was capable of before the accident or disease that caused the disablement.
(2) For every completed year of service or part thereof exceeding six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.
All the Best and God Bless,
Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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Rightly said and viewed by our colleagues. Kindly have a reading on the below points in addition to it:
The Act governing the payment of Gratuity is the Payment of Gratuity Act 1972. Nowhere in the Act is a percentage mentioned, and 4.81% is not specified. The Act clearly states, "For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned." This is as per Section 4 of the Act. Wages are defined below as reproduced under section 2(s). Kindly have a reading.
Initially, several years ago, there was no Cost to Company (CTC) concept. We used to calculate gratuity based on 15 days' wages for every completed year for eligible employees. Later, as the industry embraced the CTC concept, every cost was converted to a percentage, including contributions under each bucket like PF, ESI, leave wages, gratuity, and so on. Thus, the 15 days of wages are equal to approximately 4.81%, as indicated in the CTC Sheet. When the actual disbursement of gratuity is settled, we need to follow the calculation of 15 days' wages for every completed year of service. Hope this clarifies.
Kindly review the provisions of the Payment of Gratuity Act 1972, which is a simple and short Act.
Wages:
2(s) "wages" means all emoluments earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment, paid or payable in cash, including dearness allowance but excluding bonus, commission, house rent allowance, overtime wages, and any other allowance.
Section 4 Payment of Gratuity Act 1972:
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.
Provided further that in the case of the employee's death, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs. If any such nominee or heir is a minor, the minor's share shall be deposited with the controlling authority for investment until the minor attains majority.
Explanation: Disablement means incapacitation for the work the employee was capable of before the accident or disease that caused the disablement.
(2) For every completed year of service or part thereof exceeding six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.
All the Best and God Bless,
Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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As mentioned by other learned members, to consider gratuity as part of CTC, it is essential to find a certain percentage relationship (for gratuity, it is 4.81% of Basic and DA per month). The calculation of gratuity is Last drawn salary (Basic & DA) / 26 * 15 * years of completed service. In the calculation, two items are variable (Last drawn salary and years of completed service), and two items are fixed, which are 26 and 15. The ratio 15/26 is 0.577, which is the per year factor, and 0.577/12 * 100 = 4.81% on a monthly basis.
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From India, New Delhi
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S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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Payment of Gratuity Act, 1972 & The Rules.ppt
THE PAYMENT OF GRATUITY ACT 1972.doc