Gratuity is a financial reward given to employees as a token of appreciation for their dedicated service. In India, it is governed by the Payment of Gratuity Act, of 1972. This law defines when an employee is eligible for gratuity, how it is calculated, and the employer’s responsibility for timely payment.

If you work in a company for several years, you may receive a gratuity. However, not all employees are eligible, as the government has set specific rules for it. Only those who meet the required conditions can avail of this benefit. Throughout this article, we will share complete details on how much gratuity you will receive after 10 years on a basic salary of INR 50,000.

What is Gratuity?

Gratuity is a financial reward given by employers to employees who have served the company for a long time. It is governed by the Gratuity Act, of 1972, which outlines the rules for gratuity payment, its calculation, and other important details. This law applies to various sectors, including government departments, defence, and private organizations.

Eligibility for Gratuity

According to current rules, an employee becomes eligible for gratuity after completing five continuous years of service in a company. If an employee leaves the job before completing five years, they will not be entitled to receive gratuity.

Gratuity Rules for Companies

If a company has 10 or more employees, it is mandatory to pay gratuity to its employees. This rule applies to both government and private companies, as well as shops and factories.

Check If Your Company Is Registered Under the Gratuity Act

Before applying for gratuity, check if your company is registered under the Gratuity Act. If it is registered, the company must pay gratuity as per the rules. However, if it is not registered, gratuity payment depends on the company’s discretion.

Minimum Time Requirement for Gratuity

The minimum service period to receive gratuity in India is 5 years.
If an employee has worked 4 years and 8 months, it is considered as 5 years, making them eligible for gratuity.
However, if the service period is 4 years and 7 months, it is counted as 4 years, and gratuity is not applicable.
The notice period is also included in the total job duration.

Gratuity Rules in Case of Employee’s Death

If an employee dies while working, the minimum service rule does not apply. In this case, the gratuity amount will be paid to the nominee of the employee.

How to Calculate Gratuity

The formula to calculate gratuity is:

(Last Basic Salary) × (Total Years of Service) × (15/26)

Since 4 Sundays in a month are considered as weekly offs, gratuity is calculated based on 26 working days per month.

Gratuity Calculation Example

If an employee works for 20 years and their last basic salary is ₹50,000, the gratuity amount will be:

Basic Salary × Job Tenure = ₹50,000 × 20 = ₹10,00,000
(Basic Salary × Job Tenure) × (15/26) = ₹10,00,000 × 15/26 = ₹5,76,923 (₹5.76 lakh)

Gratuity Calculation Based on Basic Salary

Private-sector employees do not receive Dearness Allowance (DA) like government employees. Therefore, gratuity is calculated only on the basic salary.

For example, if the last salary is ₹50,000, but the basic salary is ₹25,000, the gratuity will be:

Basic Salary × Job Tenure = ₹25,000 × 20 = ₹5,00,000
(Basic Salary × Job Tenure) × (15/26) = ₹5,00,000 × 15/26 = ₹2,88,461

Fixed Gratuity in Some Companies

Some companies have a fixed gratuity amount for employees who have worked for 5 years or more. In such cases, the gratuity is predetermined and may not follow the standard formula.

Note: The gratuity amount depends on your last salary, job tenure, and company policies. It may change if there are amendments in salary structure or gratuity laws.