Gratuity Calculator

Introduction

In India, firms with ten or more employees must pay gratuity to employees who have completed at least five years of service. But how do you determine how much gratuity you are entitled to? This is where the Runtime HRMS Gratuity Calculator comes in. Using Runtime HRMS Gratuity Calculator you can determine the estimated incentive that you will receive from your employer. Read this article till the end for complete information related to gratuity.

What is gratuity?

Gratuity is a lump sum payment made by an employer when an employee departs the company, either due to retirement, superannuation, or in specified situations such as untimely death or incapacity. It is a gift of appreciation for an employee's long-term contributions to the organization.

Employees working in firms with ten or more employees and who have completed five years of continuous employment are entitled to gratuity. It can also be supplied in specific instances, such as sudden death or disability. Also, Retirement and Superannuation (when an employee reaches the retirement age in specific organizations)

How is the gratuity calculated?

Gratuities are calculated based on the employee's income and length of service with the company. The methodology for determining gratuity differs depending on whether the employee is covered by the Gratuity Act of 1972 or not.

Employees working in firms with ten or more employees and who have completed five years of continuous employment are entitled for gratuity. It can also be supplied in specific instances, such as sudden death or disability. Also, Retirement and Superannuation (when an employee reaches the retirement age in specific organizations)

For employees covered by the Gratuity Act of 1972: 

• To calculate gratuity, multiply 15 days of average pay by years of service. Average pay is calculated as ((last drawn basic pay + dearness allowance) ÷ 26 working days) × 15 days.

For employees not protected by the Gratuity Act of 1972:

• Gratuity is calculated as 15 days of average pay multiplied by years of service. Average pay is calculated as (last drew basic pay + dearness allowance) divided by 30 working days. × 15 days

• Gratuity is calculated as 15 days of average pay multiplied by years of service. Average pay is calculated as (last drew basic pay + dearness allowance) divided by 30 working days. × 15 days

For example, if you have worked for 6 years in an organization with a basic salary of ₹40,000 and DA of ₹5,000, you can use this formula to calculate your gratuity. This simple approach ensures that you receive a fair amount based on your service.

Who is eligible for gratuity?

You are eligible for a gratuity if you meet any of the following conditions.

• You've been at the same employment for at least 5 years.
• You are retiring or reaching the superannuation age.
• You have incurred a work-related disability. 
• You are departing the organization due to retirement, resignation, or death.

How does the Runtime HRMS calculate gratuity?

Runtime HRMS simplifies gratuity calculation. When an employee has completed 5 or more years of service, the system automatically calculates their gratuity at termination. The calculation uses the above-mentioned formula to ensure accuracy and efficiency. 

For example, when an employee leaves the company, their final pay includes the gratuity amount, which is automatically calculated on the termination payment. HR personnel can alter the gratuity amount as needed, making it more flexible and manageable.

Taxation on gratuity

Gratuity is taxable, although the laws vary depending on whether you're a government or private-sector employee:

• For government employees, the entire gratuity is tax-free.

For private-sector employees (covered under the Gratuity Act of 1972), at least one of the following is exempt from tax:

• Total gratuity amount received: ₹20 lakhs
• 15 days' pay for each completed year of service. 
• For private-sector employees (not protected by the Gratuity Act of 1972), at least one of the following is exempt from tax:
• Total gratuity received: ₹20 lakhs - Half-month salary for each completed year of service

Is there a limit on gratuities?

The Government of India has set a maximum statutory gratuity payment of ₹20 Lakhs for employees.

How long does it take to release gratuity?

Employers must release the gratuity within 30 days of the employee's final settlement. If the payment is not released on time, the employer must pay interest on the gratuity. The annual interest rate is 8% if paid within four weeks, and 10% if paid later.