Gratuity Provision on Wages

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This query is : Resolved

SUDHEEP M (Querist)

21 January 2022 Sir,

Normally gratuity provisions was applicable to an employee whose period of service greater than 5 year and calculation based on (last drawn salary/26)*15. Whether there was any changes in the gratuity calculation in case of employees working under daily wage system under factories Act.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

07 July 2024 Under the Payment of Gratuity Act, 1972, which governs the payment of gratuity in India, the calculation method remains consistent for all employees, including those under the daily wage system. Here are the key points regarding gratuity calculation:

1. **Eligibility:** An employee becomes eligible for gratuity upon completion of 5 years of continuous service with the employer. This includes employees working under the daily wage system, provided they meet the eligibility criteria.

2. **Calculation Formula:** The gratuity amount is calculated using a formula based on 15 days of wages for every completed year of service. The formula is:
\[
\text{Gratuity} = \left( \frac{\text{Last drawn salary}}{26} \right) \times 15 \times \text{Number of completed years of service}
\]
Here, "last drawn salary" includes basic salary, dearness allowance, and any commission as per the terms of employment.

3. **Daily Wage Employees:** For employees paid daily wages, the last drawn salary is computed by averaging their daily wage over the last 3 months preceding their termination of employment.

4. **Changes in Calculation:** There have been no specific changes in the gratuity calculation method based on whether an employee is under the daily wage system or any other payment structure. The same formula applies universally for eligible employees.

5. **Statutory Compliance:** Employers are required to adhere to these provisions under the Payment of Gratuity Act, ensuring timely calculation, payment, and compliance with reporting requirements.

Therefore, employees working under the daily wage system are eligible for gratuity under the same conditions as other employees, and the calculation method remains consistent across different employment types under the Act. It’s important for employers to accurately calculate and provide gratuity as per statutory requirements to eligible employees, including those under the daily wage system.

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