Introduction
Gratuity Calculation India: Gratuity is a statutory benefit provided to employees under the Payment of Gratuity Act, 1972. It is paid by the employer as a reward for long-term service when an employee leaves the organization after completing five years of continuous service.
Understanding gratuity calculation is an essential skill for HR professionals because it directly impacts payroll compliance and employee settlements. This article explains gratuity calculation in India with a formula, examples, and practical HR guidance for HR professionals and students.
What is Gratuity?
Gratuity is a financial benefit paid to employees upon resignation, retirement, or termination after at least five years of service.
It is governed by the Payment of Gratuity Act, 1972, in India.
Gratuity Calculation Formula
The formula used to calculate gratuity is:
Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26
Where:
Last Drawn Salary = Basic + DA
Years of Service = Total completed years of service
Example
If an employee’s last salary is ₹40,000 and they worked for 7 years:
Gratuity = (40000 × 15 × 7) / 26
Gratuity = ₹1,61,538
Why HR Professionals Must Know This
HR professionals must understand gratuity calculations because:
• It is required during full and final settlements
• It ensures labour law compliance
• It builds employee trust and transparency
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