Payment of Gratuity Act, 1972

Any shop or foundation with 10+ workers employed for the preceding 12 months is under the application of The Payment of Gratuity Act.

There is no definite percentage set by gratuity act for any employee. Based on a formula, an employer pays the gratuity to his employee.

Factors to consider

• Last drawn salary
• Years of service

There are 2 categories of non-government employees divided by The Payment of Gratuity Act to calculate the payable amount. Those are,

• Employees covered under the Act
• Employees not covered under the Act

Employees covered under the Act

For the employees those who are covered under the act.

     Formula

                     (15 X Last Drawn Salary X Tenure of Working) / 26

                     That is 15 days of last drawn salary for years of service.

Employees not covered under the Act

Though the employees are not covered under the act, there are no restrictions for paying the gratuity.

       Formula

                    (15 X Last Drawn Salary X Tenure of Working) / 30

                     half a month salary for each serviced years.

According to the portal of government pensioners, retirement gratuity is determined this way: one-fourth of a month’s compensation in addition to dearness stipend is drawn before retirement for each completed six mothy periods of qualifying service.

If there is an occurrence of death of an employee, the gratuity is paid depending on the service tenure, where the highest to procure is limited to Rs 20 lakh.