It’s been 5 years of working at the company, so you must know these 7 big things related to gratuity

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If you have worked in a company for 5 years, you will be considered eligible for gratuity. Gratuity is paid by the company for providing safe services to its employee for a long period of time. The amount of gratuity paid to the employee is determined by a formula. Although the company can pay more than the stipulated amount if it wants, the rules should not exceed 20 lakhs. Gratuity is paid to the employee after 5 years or after leaving employment or retirement. If you are an employee yourself, there are a few things you should know about gratuity.

7 Rules relating to Gratuity

  • There is a formula for determining the amount of grace. This formula is – (Last Salary) x (Number of years worked in the company) x (15/26). Last Salary is the average of your last 10 months of salary. This salary includes basic salary, gratuity and commission. Since there are 4 Sundays in a month, 26 days are calculated and gratuity is calculated based on 15 days.
  • If a private or government company employs 10 or more people, the company must provide the benefit of gratuity to all employees. Apart from company, shops, mines and factories come under this rule. But any employee is eligible for gratuity only after 5 years of continuous service in the company.
  • If an employee has worked in the company for 4 years and 8 months, his service will be fully considered for 5 years and he will get gratuity according to the 5 years. If he has worked for less than 4 years and 8 months, his service will be counted as 4 years, in which case he will not get gratuity. That means even after 4 years and 8 months of service, you are still eligible for gratuity.
  • The employee’s notice period is also counted in the gratuity period. Suppose you resign from a company after working for four and a half years, but after resigning you have given a notice period of two months. In this case, your employment period will be counted as 4 years and 8 months only. And gratuity will be given on consideration of 5 years.
  • When the company or organization is not registered under the Gratuity Act, the employees are not covered under the Gratuity Act. In this case, it is the discretion of the company whether to give gratuity or not. But if the company still wants to give gratuity to an employee, the formula is different. In this case, the gratuity will be equal to half a month’s salary every year. But the number of working days in a month is considered to be 30 days and not 26.
  • Any company can give maximum 20 lakh rupees as gratuity to its employee. The amount received as gratuity is tax exempt. This rule applies to both government jobs and private jobs.
  • If an employee dies during service, the entire amount deposited in his gratuity account will be paid to his nominee. In this case, the condition of minimum 5 years of service is not applicable.
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