Explained Gratuity in the Simplest Way!

No matter how popular gratuity is, there are still a good number of working individuals out there who do not have a clear understanding of this employee benefit. 

If you are an employer or HR professional, it is vital for you to know everything about gratuity as employees will run towards you first whenever they have any queries about the same. 

Now, one can find many blogs/articles related to this topic on the internet today. But, here we will tell you about gratuity in a simple language. 

In this article, we will discuss everything about gratuity, from the definition, gratuity calculation formula, to its eligibility. 

Here are the highlights of this article: 

• What does it mean? 
• Who can avail it? 
• How is it calculated? 
• Is the gratuity benefit taxable? 
• When should employees get it? 
• Parting Thoughts 

It is time to start exploring! 

What Does it Mean?

Every employee puts his/her best foot forward for the success of the business. As a token of gratitude, employers give a sum of money to such people. This is termed gratuity.

Most employees work dedicatedly to avail this employee benefit. So, employers must give them what they deserve.

Now, not all working individuals can acquire this employee benefit. This is certainly because there are some eligibility criteria as per Indian law. 

Who Can Avail it?

As we discussed above, only some employees can enjoy this employee benefit. 

Here are the top three eligibility conditions for gratuity:

• He or she must be eligible for superannuation 
• He or she must have retired 
• He or she must have left the company after working for a minimum period of five years or more 

Additionally, the gratuity can also be availed if the employee passes away or gets disabled following an accident or health issues. In such a scenario, the nominee of the employee gets the gratuity payment. 

How is it Calculated?

When it comes to the computation of gratuity, people often think that it is impossible to do it on their own. However, this is not true.

Anyone and everyone can effortlessly calculate this employee benefit. 

Here is the formulae for computation: 
GR= 15*LS*EY/30

Here,

• GR is gratuity 
• LDS is the last drawn salary 
• And, EY is the total employment years

This gratuity calculation formula will definitely give you the correct answer.

But, if you want to make the whole computation process faster and easier, just rely on any of the gratuity calculators available on the internet. 

With such online calculators, all you will need to do is put the required input, and they will show you the exact amount in just a few seconds. 

Is the Gratuity Benefit Taxable? 

The answer to this question can vary depending on the sector an individual is involved in. 

Say, for instance, when we talk about employees working in the govt. sector, their gratuity payments are excused from the income tax. 

On the other hand, employees working in the private sector are also excused but on a specific salary. 

When Should Employees Get it? 

This is one of the common doubts among working individuals. According to the gratuity laws, every employer is bound to release the gratuity of employees within 30 days. 

If an employer fails to do the same, he or she will have to encounter a number of legal consequences- one being the interest on delayed days. 

Parting Thoughts 

So, like every employee benefit, gratuity is also a vital benefit that aids working individuals in difficult times. 

Without a doubt, gratuity is a wide concept. It has a number of facts related to it; however, we have picked the most important ones and discussed them in this blog. 

Hope we have helped you learn more about this employee benefit. Now that you know, do not be hesitant to share these learnings with your family, friends, and colleagues. Go for it!