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

The Payment of Gratuity Act, 1972


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


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.


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/-.

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

Gratuity is a definite return plan for a worker for remaining consistent on his job for continuous  five years. Gratuity is principally a kind of appreciation  given by the organization. The word “Gratuity” is a word that comprises the rights, amenities, and facilities that are delivered, to all of the entitled workers. As per the rules and regulations, the government has not announced any fixed remuneration that the establishment requires to provide as honour, to the type of contribution, and the nature of obligation presented by the employee to the organization.

Below mentioned a few influenced instructions that make a staff member eligible for the gratuity upon departure from the company, it can be resignation or retirement.

Features that are vital in the process of Gratuity calculation

  • The complete outcome for the Gratuity Calculation method depends upon the last drawn wages and  the time period for which the employee has been working in the organization
  • The previous total was 10  lakhs, which later was elevated, by the management.
  • Currently, the sum paid cannot exceed the higher boundary of 20  lakhs

 Compensation of Gratuity Act

As per the compensation of Gratuity Act, 1972, if the worker has continued his job with an establishment for at least equal to five years, he is entitled to attain gratuity.

The gratuity is settled in two circumstances to the worker:

  • If an employee is getting retirement from the company
  • If he is exiting from the company voluntarily, resignation
  • If the worker’s services are dismissed due to some disease or demise or incapacitated happened by a calamity or mishap, the establishment must need reimbursing by the law of gratuity. The gratuity could be provided to the worker’s nominee in the condition of demise.

 Find here the prominent gratuity rules.

  •  The worker must have accomplished at least 5 years in the organization
  • The worker has to submit the claim within 30 days after departure
  • Gratuity amount must be paid before 30 days
  • However, the company can’t reject the submission at the ending of 30 days
  • A worker has the lawful reason for the disruption; the gratuity guidelines streamline that no privilege should be unacceptable because the candidate has not claimed in the specified period
  • Assuming the establishment rejects the submission he will forcibly give the purpose for refusal
  • The payment of gratuity should be given either by cheque, DD, or cash.

An employee or the nominee can protest to the official managerial complaint under the below mention conditions: -

  • If the establishment discards to take the submission.
  • The gratuity sum paid less by the employer than what is calculated.
  • The employer flops to wage the due amount to the candidate after receiving the claim