How is the gratuity amount decided?
Gratuity Calculation Formula: Amidst the discussions about the implementation of the new Labor Code, the biggest question is what effect it will have on your pocket and retirement fund. Gratuity is an important deposit for employed people, which is received in return for long term service. But under the new rules, there may be a big change in its multiplication. If you also want to understand whether you will benefit from the new system or not, then this news is very important for you.
Will you get gratuity even after working for one year?
In the new Labor Code, some relaxations have been given in the rules according to the category of employees. The biggest relief is for ‘fixed term’ i.e. contract employees. Till now the rule was that to get gratuity it was necessary to work continuously for 5 years in the same company.
However, according to the new proposals, this limit has been reduced to only 1 year for fixed term employees (Contractual Employees). That means if someone works on contract for 1 year, that too gratuity Will be entitled to. At the same time, for regular or permanent employees, the condition of 5 years of service will remain applicable as before. According to Kriti Kaushik, partner, Shardul Amarchand Mangaldas & Company, the 5-year rule will continue for regular employees, but fixed term employees will get paid on pro-rata basis.
new labor code The most important part is ‘Wages’ i.e. the new definition of salary. The new rules say that your ‘Basic Salary’ should be at least 50% of the total CTC (Cost to Company). If your allowances are more than 50% of the total salary, the excess amount will be added to ‘wages’.
This will have a direct impact on the calculation of gratuity. Till now gratuity was calculated only on basic salary and dearness allowance (DA). But due to increase in the scope of ‘wage’ in the new rule, the amount of gratuity will automatically increase.
How is the gratuity amount decided?
The government has fixed a standard formula for gratuity calculation, which is very easy to understand. Often people make the mistake of calculating their in-hand salary or CTC, whereas gratuity is always calculated on your basic salary and dearness allowance (DA). Formula: (Last Basic Salary + DA) × (15/26) × (Total Years of Service) Two numbers are very special in this formula, 15 and 26.
- 15- Because for every year you are given 15 days salary as reward.
- 26 There are an average of 30 days in a month, but 4 Sunday holidays are removed. Therefore working days are considered 26.
If the salary is ₹30,000 then how much gratuity will you get?
Suppose the gross monthly salary of an employee is Rs 70,000 and he has worked in the company for 10 years. His basic salary is Rs 30,000 and other allowances are Rs 40,000. Since other allowances (Rs 40,000) are Rs 5,000 more than 50% (i.e. Rs 35,000) of the total salary (Rs 70,000), this Rs 5,000 will be added to the basic salary.
- New salary for gratuity = Rs 30,000 + 5,000 = Rs 35,000
- Gratuity formula: 15/26 × (35,000 × 10)
- Total gratuity = Rs 2,01,923 (approx)
According to the existing rules (Payment of Gratuity Act), at present the calculation is done only on the basic salary (Rs 30,000). Excess of allowances has no effect.
- Salary for calculation = Rs 30,000
- Gratuity formula: 15/26 × (30,000 × 10)
- Total gratuity = Rs 1,73,076 (approximately)
It is clear that after the implementation of the new rules, the employee will get a direct benefit of about Rs 28,847.
Gratuity will be available even before 5 years
Experts say that the rule of 5 years of compulsory service is applicable only in normal circumstances. If an employee dies or becomes a victim of disability, gratuity will be paid even if 5 years of service is not completed. Also, when the contract of fixed term employees ends, they will get pro-rata payment according to their tenure, even if the tenure is less than 5 years.
Also read- New Labor Code: Neither the owner will cry, nor the employee will be afraid! What is it in the new law that made both of them happy?