Gratuity Calculation Explained: How much will you get on Rs 60,000 last-drawn basic salary & 7.5 years of service?

Gratuity is a crucial financial benefit designed to provide monetary security to employees during key milestones such as resignation, retirement or unforeseen events. If your last-drawn basic salary is Rs 60,000 and you’ve completed 7.5 years of service, here’s an in-depth look at how gratuity is calculated and its significance.

What is Gratuity & who can avail it?

Gratuity is a financial benefit paid by employers as a token of appreciation for an employee’s continuous service. It is governed by the Payment of Gratuity Act, 1972, which applies to establishments with at least 10 employees.

Gratuity payment eligibility criteria:

• Employees must work in organisations with a minimum of 10 employees in sectors like factories, offices or railways.
• Continuous service of at least 5 years is mandatory to claim gratuity.

When is Gratuity payable?

Gratuity is typically disbursed under the following circumstances:

• Resignation: Voluntary exit from the organisation.
• Retirement or Superannuation: Post-service benefits upon reaching the retirement age.
• Termination: In cases where employment is terminated by the employer.
• Disablement: Permanent disability due to an accident or illness.
• Death: Paid to the nominee or legal heirs of the employee.
• How Organisations Qualify for Gratuity Benefits

According to the Act, any organisation employing 10 or more individuals in the preceding 12 months must offer gratuity benefits. Both private and government sectors fall under this provision, and once eligible, an organisation cannot opt out of compliance.

Minimum service requirement for Gratuity

To qualify for gratuity, an employee must have rendered 5 years of continuous service. Importantly, 6 months or more in a given year are rounded up to a full year when calculating service tenure.

Service year examples:

• 7 years and 1 month: Counted as 7 years.
• 8 years and 6 months: Rounded up to 9 years.

Factors affecting Gratuity calculation

The amount of gratuity depends on two key factors:

• Last-Drawn Basic Salary: The base pay of the employee.
• Total Years of Service: Rounded per the Act’s rules.

Gratuity calculation formula

The gratuity amount is computed using the following formula:

Gratuity = (Last Drawn Salary × Years of Service × 15) ÷ 26

• 15: Represents 15 days’ salary per year of service.
• 26: Refers to the average number of working days in a month, excluding Sundays.

Gratuity Calculation for Rs 60,000 basic salary & 7.5 years of service

For an employee earning a basic salary of Rs 60,000 with 7 years and 5 months of service (rounded to 7 years):

Gratuity = (60,000 × 7 × 15) ÷ 26

Gratuity = Rs 2,42,307

The importance of understanding Gratuity

Gratuity is a key component of financial planning, ensuring employees have access to funds for future needs such as retirement, emergencies or major life goals. Employees can use gratuity calculators to estimate their entitlement, providing clarity and aiding in effective financial planning.