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Gratuity - Rules, Eligibility and Gratuity Formula & Calculator - Pionhr

The Payment of Gratuity Act, 1972

Introduction

This act functions as a retirement benefit for the employees. The sum of accumulated amount is paid to the employee after his retirement.

Applicability

The act is applicable to:    

  • Employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental with.  
  • Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a state, in which 10 or more persons are employed, or were employed, on any day of the preceding 12 months.
  • Such other establishments or class of establishments, in which 10 or more employees are employed, or were employed, on any day of the preceding 12 months, as the Central Government may, by notification, specify in this behalf.

Eligibility

The payment of gratuity to the employee is mandatory, once the employee has served the establishment for at least 5 years. An employee becomes eligible to claim his Gratuity under The Payment of Gratuity Act, 1972 when he leaves the establishment. The reason for leaving may be resignation or retirement or can even be due to any medical condition caused by diseases of accidents and death.

Exception to the Rule: The criteria of completing the service of 5 years is not mandatory if, the cause of the termination of employment is

  • Death of the employee or;    
  • Any disability due to diseases or accidents, making the employee incapable of continuing the services

Formula for Calculating Gratuity:

{(Basic salary + D.A) x 15 days x No. of years of service} / 26

However, under Section 4 (3) of The Payment of Gratuity Act, 1972 the maximum amount of gratuity to be paid by the establishment is fixed at ? 10,00,000/-.