Gratuity eligibility and calculation: Are you eligible even with less than 5 yrs spent in a company? Check surprise answer

Gratuity eligibility and calculation: What happens to your gratuity eligibility and payment if you have to leave a company just short of completing five years due to a better offer or unforeseen happenings. Wondering if all your money could vanish just because you are short by just a few months? Know surprise answer!

Employees who have completed at least 5 years of service in any company and are planning to change the organization or are about to retire from their jobs are entitled to gratuity. This is an important part of the salary structure of any employee and ultimately, goes to provide a big lump sum amount in their hands. As per Section 4(1) of the Payment of Gratuity Act 1972, an employee becomes eligible for gratuity only after completion of 5 years of continuous service with the same establishment.

There is an argument relating to the eligibility of payment of gratuity that if an employee has completed 4 years of service but has not completed 5 years of service whether he is eligible for gratuity.

Gratuity Payment
The answer lies in Section 4(2) of the Payment of Gratuity Act. The section spells out the condition on the eligibility of an employee for gratuity in the event of him not completing the full five year period.

The section says that for every completed year of service in excess of six months, the employer shall pay gratuity to an employee. That means if an employee works in the establishment for more than 6 months in a year, he shall be eligible to get gratuity at the prescribed rate. So, if an employee completes 4 years and 6 months of continuous service in the same establishment, he is eligible to get gratuity as per the Payment of Gratuity Act 1972.

There is also a judgment by the Madras High Court which says that there is the eligibility for the gratuity of an employee who completes 4 years and 240 days of service. But it is advisable to follow what has been prescribed in the law.

Gratuity Calculation
Below, we also tell you how to calculate your gratuity amount.

Gratuity calculation formula:

Gratuity = n*b*15/26

Here, 'n' is the tenure of service completed in the company and 'b' is the last drawn basic salary + dearness allowance

To make it easy for you, we explain it to you through an example.

Imagine that you worked with XYZ company for a period of 10 years. Your last drawn basic salary along with dearness allowance was Rs 40000. The amount of gratuity = 10*40000*15/26 = Rs 230,769.23

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Note that the time period of service is rounded-off for gratuity calculation. If the last few months in the last year of employment are more than 6 months, then it will be rounded to the next number. For eg. 10 years and 8 months will become 11 years. However, up to five months the same year will be counted. For example, if the period of service is 10 years and 4 months, it will be treated as 10 years.