Dear Seniors, I am making a gratuity for an employee who has completed 9.5 years in a company. His basic salary is 21078/—, and the amount is coming around 109443. However, a few calculators are showing that it doesn't come under the gratuity act, and I am recalculating the amount, which is 94851/—. Could you please suggest which one is right?
From India, New Delhi
From India, New Delhi
Hi, Gratuity amount Rs.109443/- is correct for 9.5 years services ( last drawn Basic * 15/26 * 9 years).
From India, Madras
952From India, Madras
The gratuity cannot be less than Rs 109443 because for a service of 9 years (ignoring fraction of six months to make it 9.5 years, assuming that .5 years is not 5 months but 1/2 of the year) with a basic salary of Rs 21078 it can not be Rs 94851. Now, if the employee had at least ONE DAY in excess of six months then the gratuity amount would become Rs 1,21,604, because 9 years, 6 months and 1 day would make it rounded to 10 years.
You have taken the basic salary alone for calculation of gratuity. Why? Is there any provision under Payment of Gratuity Act that gratuity should be calculated on basic salary only? What is the definition of wages under the Payment of Gratuity Act? Nowhere in the Act, there is a mention of basic salary/ wages but as per section 2(s) “wages mean all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance”. It is true that there are some exclusions like, bonus, commission, house rent allowance, overtime wages and similar other allowances. House rent allowance is a compensatory allowance paid to those employees who reside in leased houses, and if it is paid universally to all employees without any reference to whether the employee is residing in leased house or not or without reference to whether the spouse is getting HRA r not, will not qualify for exclusion. Still, for a defence you can say that it is excluded from the scope of wages. If it is accepted aslo, what about the other allowances that pay? Allowances similar to over time, bonus etc shall be excluded, but those allowances like "special allowance" cannot be excluded, any way. However, all the establishments pay gratuity on basic pay that they fix and the dearness allowance as applicable. Again, 90% of the private companies do not have DA in their salary structure! Certainly, they will give salary increase also every year. Then the question will arise, why should an employee be given salary increase every year? The answer is to " reward the performance and to compensate the cost of living". These are reflected in basic salary and dearness allowance and not under any allowance. If you put it under any other head, certainly that head will come under the scope of wages. This is my observation about gratuity qualifying salary.
From India, Kannur
You have taken the basic salary alone for calculation of gratuity. Why? Is there any provision under Payment of Gratuity Act that gratuity should be calculated on basic salary only? What is the definition of wages under the Payment of Gratuity Act? Nowhere in the Act, there is a mention of basic salary/ wages but as per section 2(s) “wages mean all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance”. It is true that there are some exclusions like, bonus, commission, house rent allowance, overtime wages and similar other allowances. House rent allowance is a compensatory allowance paid to those employees who reside in leased houses, and if it is paid universally to all employees without any reference to whether the employee is residing in leased house or not or without reference to whether the spouse is getting HRA r not, will not qualify for exclusion. Still, for a defence you can say that it is excluded from the scope of wages. If it is accepted aslo, what about the other allowances that pay? Allowances similar to over time, bonus etc shall be excluded, but those allowances like "special allowance" cannot be excluded, any way. However, all the establishments pay gratuity on basic pay that they fix and the dearness allowance as applicable. Again, 90% of the private companies do not have DA in their salary structure! Certainly, they will give salary increase also every year. Then the question will arise, why should an employee be given salary increase every year? The answer is to " reward the performance and to compensate the cost of living". These are reflected in basic salary and dearness allowance and not under any allowance. If you put it under any other head, certainly that head will come under the scope of wages. This is my observation about gratuity qualifying salary.
From India, Kannur
Employees Seasonal Order not Seasonal permeant is this employee can you gave Retaining allowance.
From India
From India
Hello Sir ,
As per your details .9.5 years means he has completed 9 years & 6 months . If he/she completed 6 months as per gratuity rules we have to convert it in 1 yr. So ,In this case 9.5 years will be calculated as 10 yrs .
So calculation will be as follows :
Basic X 15 X yrs of service
= ---------
26
21078 X 15 X 10
= ---------
26
Ans : 121603.84 /-
From India, Ahmadabad
As per your details .9.5 years means he has completed 9 years & 6 months . If he/she completed 6 months as per gratuity rules we have to convert it in 1 yr. So ,In this case 9.5 years will be calculated as 10 yrs .
So calculation will be as follows :
Basic X 15 X yrs of service
= ---------
26
21078 X 15 X 10
= ---------
26
Ans : 121603.84 /-
From India, Ahmadabad
Only more than six month service is rounded of to one year. Not exactly six months
From India, Thiruvananthapuram
From India, Thiruvananthapuram
Pl.take note of the provisions of the PoG Act in respect of "Wages" and what are the components covered thereunder and the rounding of payable service "one year and part thereof over six months" and "continuous service".
" Section 2-(s) of the Payment of Gratuity Act,1972 - “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime
wages and any other allowance.
Sec.4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation,
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority].
Explanation.- For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
-------------
Unquote:
While computing the 'completed, continuous service' it's important to keep in mind the stipulation vide Sec.3[2A. Continuous Service.-
" (1) For the purpose of this Act-
(1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of
sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order 4[***] treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or
4 The words “imposing a punishment or penalty or” omitted by Act No.22 of 1987 sec. 3
(w.e.f. 1.10.1987).
4 The Payment of Gratuity Act, 1972 Sec. 3
cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months,
he shall be deemed to be in continuous service under the employer-
(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-
(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in aweek; and
(ii) two hundred and forty days, in any other case:
(b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked
under the employer for not less than-
(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case;
1[Explanation.- For the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which-
(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial
Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so,however, that the total period of such maternity leave does not exceed twelve weeks].
(3) Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for such period if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during such period.]
4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on
the termination of his employment after he has rendered continuous service for
not less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation,
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority].
Explanation.- For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of 2[an employee who is employed in a seasonal establishment, and who is not so employed throughout the year], the employer shall pay the gratuity at the rate of seven days' wages for each season.
3[Explanation.-In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.]
From India, Bangalore
" Section 2-(s) of the Payment of Gratuity Act,1972 - “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime
wages and any other allowance.
Sec.4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation,
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority].
Explanation.- For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
-------------
Unquote:
While computing the 'completed, continuous service' it's important to keep in mind the stipulation vide Sec.3[2A. Continuous Service.-
" (1) For the purpose of this Act-
(1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of
sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order 4[***] treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or
4 The words “imposing a punishment or penalty or” omitted by Act No.22 of 1987 sec. 3
(w.e.f. 1.10.1987).
4 The Payment of Gratuity Act, 1972 Sec. 3
cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months,
he shall be deemed to be in continuous service under the employer-
(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-
(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in aweek; and
(ii) two hundred and forty days, in any other case:
(b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked
under the employer for not less than-
(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case;
1[Explanation.- For the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which-
(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial
Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so,however, that the total period of such maternity leave does not exceed twelve weeks].
(3) Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for such period if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during such period.]
4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on
the termination of his employment after he has rendered continuous service for
not less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation,
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
1[Provided further that in case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority].
Explanation.- For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of 2[an employee who is employed in a seasonal establishment, and who is not so employed throughout the year], the employer shall pay the gratuity at the rate of seven days' wages for each season.
3[Explanation.-In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.]
From India, Bangalore
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