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Gratuity is a lump sum amount paid by the employer to the employee as a token of
appreciation for the services they have provided towards the company.

Gratuity as a part of salary

Gratuity is the monetary amount which is payable to the employee of an organization
under the Payment of Gratuity Act 1972. This is mainly paid to the employee as a
token of appreciation for his/her services towards the company. Gratuity payment is
one of the several components that make up the gross salary of the employee.
However, an employee is eligible to receive the gratuity amount only after they
complete a period of 5 or more years with the company.

The employer may either pay their employees the gratuity amount from their own
account or opt for a general gratuity insurance plan with a service provider. The
company then pays annual contributions to the service provider, and in return, the
insurance company can pay the gratuity amount to the employee, by following the
policy rules and regulations. The gratuity amount is totally paid by the employer
without any contributions from the employee.
Eligibility Criteria to Receive Gratuity.
• They should be eligible for superannuation.
• They resign after working for five years with a single employer.
• They retire from work
• They suffer disability or pass away due to accident or illness during their service.

Calculation of gratuity.
Gratuity Amount = Y x S x 15/26
Where Y – Number of years worked in the organization,
S – Last drawn salary including DA
The employer is free to provide the employee higher gratuity, but according to the
Gratuity Act, the amount cannot exceed Rs. 10 Lakhs. Anything above INR 10 lakhs, the
amount is known is ex-gratia, which is a voluntary contribution and not compulsorily
imposed by any law.
To calculate the number of years for the gratuity calculation, anything above 6 months is
rounded off to the next number and anything below 6 months will be rounded off to the
previous number.
THANK YOU.