Gratuity is more than just a bonus. It is a financial reward for years of hard work and dedication. It plays a key role in securing the financial future of employees who have devoted years to their organisations. But, do you know that you can calculate gratuity online? This has been made possible through a gratuity calculator.
A gratuity calculator is helpful in knowing exactly how much you’re eligible for!
This blog will help you understand how to calculate gratuity and the benefits of using a gratuity calculator!
- Gratuity Meaning
- How to Calculate Gratuity
- How to Use an Online Gratuity Calculator
- Employee Gratuity Calculator
- How Does the Gratuity Calculator Work?
- Factors Affecting Gratuity Calculation
- Advantages of Using a Gratuity Calculator
- Different Ways to Invest Your Gratuity Amount
- Conclusion
- FAQs| Gratuity Calculator
Gratuity Meaning
Gratuity is a step towards financial stability!
It is a financial reward employers give to employees who have served at least five years with the same employer.
In India, gratuity is governed by the Payment of Gratuity Act of 1972. Employee gratuity offers a substantial financial boost during important life events. This could be retirement, resignation, or in the unfortunate event of disability or death. Understanding gratuity is vital for employees planning their financial future.
Now comes the use of a gratuity calculator, which helps to simplify the estimation process.
Know the gratuity contribution by your employer!
The gratuity amount is primarily based on the employee’s last-drawn salary and the total number of years they have worked for the company.
What are the Eligibility Criteria for Gratuity Payment?
Employers generally adhere to specific eligibility criteria for gratuity payments:
- You must have completed five years of continuous service with the same company.
- Organisations must have at least ten employees to apply for gratuity benefits.
- Gratuity is also applicable upon reaching superannuation.
- In the event of the employee’s death, the gratuity is paid to the designated nominee. Additionally, gratuity can be granted to the employee in cases of disability caused by illness or accidents.
How to Calculate Gratuity
You can calculate gratuity using this gratuity calculation formula:
Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15/26
- Last Drawn Salary: This includes your basic salary and dearness allowance.
- Number of Completed Years of Service: Only full years are considered. If you have worked for more than six months in a year, it is rounded up to the next full year.
- 15/26: This fraction represents 15 days out of 26 working days in a month.
Let’s say your last drawn salary (including dearness allowance) is ₹50,000, and you have completed 10 years of service.
Your gratuity will be calculated as follows:
Gratuity = 50,000 × 10 × 15/26 = ₹2,88,461.54
1. Employers Covered Under the Gratuity Act
Gratuity Calculation Formula:
Gratuity = Number of Years of Employment × Last Drawn Salary × 15/ 26
Let’s talk about an employee who has worked for 10 years and whose last drawn salary, including dearness allowance (DA), is ₹10,000.
Their gratuity calculation would be as follows:
Gratuity Amount = 10×10,000×15/ 26= ₹57,692
Note: The calculation assumes a month has 26 working days, and the gratuity is estimated based on 15 days of wages for each year of service.
2. Employers Who are Not Covered Under the Gratuity Act
Gratuity Calculation Formula
Gratuity = Number of Years of Employment × Last Drawn Salary × 15/ 30
For an employee with 10 years of service and a last drawn salary of ₹10,000, the gratuity amount would be:
Gratuity Amount= 10×10,000×15/ 30=₹50,000
Note: In this case, gratuity is calculated based on a half-month salary for each completed year of service.
But isn’t it better to save time on such gratuity calculation and use an employee gratuity calculator?
Let’s learn how to Calculate Gratuity Online!
How to Use an Online Gratuity Calculator
There are several online tools that can help you calculate your gratuity quickly and accurately. Here are a few steps to use these calculators:
- Enter your last drawn salary: Include your basic salary and dearness allowance.
- Enter your years of service: Make sure to input the exact number of years you have worked.
Employee Gratuity Calculator
A gratuity calculator is an online tool that helps you determine the amount you’re entitled to receive when you leave a job after a specific period of service. The calculation is based on factors like your last drawn salary (including basic pay and dearness allowance) and the total years you’ve worked with your employer.
How Does the Gratuity Calculator Work?
A gratuity calculator helps you estimate the gratuity amount based on your salary, tenure, and the employer’s gratuity scheme.
- Enter Your Last Drawn Salary: You need to input your last drawn salary, including basic pay and dearness allowance.
- Enter Your Years of Service: Provide the number of years you have worked with the organisation.
- Calculate: Click the calculate button to see your estimated gratuity amount.
Factors Affecting Gratuity Calculation
- Changes in your salary structure may affect your last drawn salary, impacting the gratuity amount.
- The number of years of service is a crucial factor. The longer you work, the higher your gratuity will be.
- Some companies may have their gratuity policies, which could provide better benefits than the statutory requirement.
Advantages of Using a Gratuity Calculator
Using a gratuity calculator can be beneficial in several ways:
- It provides the exact gratuity amount you are entitled to receive from your employer.
- You only need to enter your salary and years of service. The employee gratuity calculator will quickly show you the gratuity value.
- It eliminates the hassle of using complicated gratuity calculation formulas.
- If you plan to stay with your employer for a long time, knowing your gratuity in advance will help you in the long run.
Using a gratuity calculator allows you to understand your gratuity amount quickly.
Different Ways to Invest Your Gratuity Amount
Once you receive your gratuity as a lump sum, you can consider some of the investment options.
- Fixed Deposits: While interest rates may vary, fixed deposits can provide stable returns.
- Mutual Funds: You can diversify your investments in stocks, bonds, or both through mutual funds.
- Stocks: You can also invest in shares of companies you believe in for long-term growth opportunities.
- Gold: Traditionally seen as a protection against inflation, gold can add stability to your investment portfolio.
- Bonds: If you want to make safe investments, you can invest in government securities. Bonds are a way to lend money in exchange for periodic interest payments.
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Remember that every investment carries its own risks and rewards. You must choose investments that align with your financial goals and risk-taking capacity.
Conclusion
Understanding gratuity and using a gratuity calculator can significantly impact your future finances. As an employee, knowing your rights and the benefits you are entitled to is essential. By utilising a gratuity calculator, you can easily estimate your gratuity amount.
If you’re nearing retirement or planning to resign, make sure to use a gratuity calculator to understand your financial position better.
Gratuity is not just a payment; it’s a recognition of your hard work and dedication to your organisation.
FAQs| Gratuity Calculator
The gratuity calculation formula actually uses 26 days. However, if an employer is not covered under the Gratuity Act, it will be 30 days.
If you’ve completed 4 years and 8 months of continuous service, you are eligible for gratuity.
Gratuity isn’t usually included in your Cost to Company (CTC) package. It’s considered a separate benefit that you receive after working for at least 5 years.
Yes, you can receive a gratuity if you resign after completing 5 years of continuous service. It’s your reward for the time you’ve dedicated to the company!
As of Jan 2024, the maximum limit for gratuity has recently been increased to ₹25 lakh.
To be eligible for gratuity, you must have completed a minimum of 5 years of continuous service.
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.