Here’s Everything You Need To Know About Gratuity

Although gratuity is a common element, most people out there still do not have a clear understanding of it. If you are one of those people, you have certainly landed at the right place now. In this blog, we will not just tell you about this well-known employee benefit but also a lot of other facts such as what is gratuity, gratuity benefits, and much more. So, without any further ado, let’s dive in.

Meaning

Simply put, it is a type of payment made by employers to their employees. When an individual retires or resigns from an organization after working for five long years, he or she will be obligated to receive gratuity payment.

Eligibility

From companies point of view:

According to the gratuity regulations, every company with a headcount of 10 or more is obligated to pay gratuity to their employees.
Every employer should know that once his or her company’s headcount is 10+, their employees will be eligible for gratuity even if the strength subsequently goes below 10 later.

From the employees’ point of view:

One must have completed a total of 5 years of employment period in a firm
If the employee is fired due to unprofessional conduct, he or she will not be considered eligible for it
Lastly, an employee can also receive this amount before completing five years, i.e, at his or her death, and when he or she becomes disabled.

Calculation

Now that you know its meaning and eligibility, it is time for you to know the calculation process.

Before telling you the formulae, here are the two critical elements that are used in the calculation:

The total employment period of the person
His or her last drawn salary

Formulae- last drawn salary X no. of the employment period

Needless to say, manual gratuity calculation is a difficult task that can waste a lot of time. Fortunately, today we have an option to rely on a gratuity calculator. For those who do not know, a gratuity calculator is a tool that allows people to calculate the total amount of gratuity in just a few clicks. Without a doubt, such calculators make the whole calculation process easier for everyone who needs to know his or her gratuity amount in just a matter of time.

Gratuity V/s EPF

Many people often think that gratuity and employee provident fund are the same; however, it is not true. They are two different employee benefits.

If PF is considered, an employee is supposed to make an equal contribution towards it and an equal contribution is paid by his or her employer, too.

One of the main reasons why most people get confused between PF and gratuity is that in both of these benefits, employees acquire a lump sum amount at the end of employment.

In simpler words, PF is more like a contribution plan whereas gratuity can be defined as a benefit plan. A working individual is given gratuity as an after-job perk. Most importantly, gratuity payment does not have a fixed percentage and it is completely dependent on the last drawn salary and total employment period.

In how many days the gratuity amount is paid by the employer?

Every employer is supposed to make the gratuity payment within 30 days from the date it becomes due.

If he or she fails to make the payment on time, then the employer will be obliged to make the gratuity payment along with the interest as specified by the govt.

Also Read: GST Calculator Online Free To Use – All You Need To Know

There are more it but we have only picked the common queries related to gratuity here. We cannot stress enough that every working individual, be it an employee or HR, should have good knowledge about the things discussed above. From gratuity to gratuity calculator, we hope this blog helped you to clear all your doubts related to this popular employee benefit in India.