- Date : 14/03/2023
- Read: 4 mins
Usually, when an employee leaves a business or an organization, they are rewarded with a gratuity. The gratuity is given only to the employees who fulfill the criteria for it, such as working in a company for more than 5 years, having complete documents, and other requirements.
Each employee who has continuous employment in the same company for five years or more will be given a gratuity payment according to the Gratuity Act of 1972. Read to learn more to learn about gratuity and more!
Also Read: Understand the exact breakdown of your salary!
Gratuity and the steps to claim it!
Gratuity is a sum of money that an employer is legally obliged to pay to an employee upon the completion of a certain tenure of service. It is also known as ‘retirement benefit’. In India, the Payment of Gratuity Act, 1972 lays down the rules and regulations regarding gratuity payments. Under the Act, an employee is eligible to receive gratuity if he/she has worked for a minimum of five years in the same organization. The amount of gratuity payable depends on the salary of the employee and the number of years the employee has worked in the organization.
Why and when is gratuity paid to employees?
A form of monetary compensation given by an employer to an employee upon resigning or retiring is known as a gratuity. The Payment of Gratuity Act, 1972, which specifies the eligibility requirements and the sum of gratuity to be paid to employees, governs the payment of gratuities in India. Employees are also protected by this law because it makes sure they get paid in the event of employer bankruptcy. Under the Payment of Gratuity Act, 1972, gratuity is paid to an employee who has completed five years of continuous service with an employer, or to an employee who has left service due to death, disability, old age or retrenchment. Often, a gratuity is given when an employee retires or resigns. It is given to the employee's nominee or legitimate heir in the event of death. The employee may get the gratuity payment in cash or by check.
Steps to claim gratuity from one’s ex-employer
The process to claim gratuity for an individual from their ex-employer is:
- Filing an application for gratuity: The employee must file an application for claiming gratuity with the employer. This application should be made in the prescribed format.
- Declaration by the employee: The employee must also submit a declaration to the employer, stating the details of the gratuity amount due to him or her.
- Employer’s acknowledgement of the application: The employer must acknowledge the application and the declaration submitted by the employee.
- Payment of gratuity amount: The employer must then make payment of the gratuity amount due to the employee within 30 days of the application being made.
- Submission of the gratuity amount to the appropriate authority: The employer must then submit the gratuity amount to the controlling authority or the appropriate government department.
- Claiming of gratuity from the authority: The employee can then claim the gratuity amount due to him/her from the controlling authority or the appropriate government department.
How do you calculate the gratuity amount for an employee?
To calculate the gratuity for an employee, you need to use the following formula:
Gratuity = (15 days' last drawn salary multiplied by the number of years of service) / 26
For example, if an employee has a last drawn salary of Rs. 50,000 and has worked for 5 years, then the gratuity amount will be calculated as follows:
Gratuity = (15 days' last drawn salary multiplied by the number of years of service) / 26
(50,000 x 5) / 26 = Gratuity.
Gratuity = Rs. 57,692
Also Read: How to get best out of the pension schemes?
Final words
Gratuity is a lump sum payment made by employers to employees in exchange for services rendered. To claim one’s gratuity, they need to fill out a form to request the gratuity amount from the concerned authority. And after the employer’s acceptance of the form, the amount will be transferred to the employee within 30 working days.
Each employee who has continuous employment in the same company for five years or more will be given a gratuity payment according to the Gratuity Act of 1972. Read to learn more to learn about gratuity and more!
Also Read: Understand the exact breakdown of your salary!
Gratuity and the steps to claim it!
Gratuity is a sum of money that an employer is legally obliged to pay to an employee upon the completion of a certain tenure of service. It is also known as ‘retirement benefit’. In India, the Payment of Gratuity Act, 1972 lays down the rules and regulations regarding gratuity payments. Under the Act, an employee is eligible to receive gratuity if he/she has worked for a minimum of five years in the same organization. The amount of gratuity payable depends on the salary of the employee and the number of years the employee has worked in the organization.
Why and when is gratuity paid to employees?
A form of monetary compensation given by an employer to an employee upon resigning or retiring is known as a gratuity. The Payment of Gratuity Act, 1972, which specifies the eligibility requirements and the sum of gratuity to be paid to employees, governs the payment of gratuities in India. Employees are also protected by this law because it makes sure they get paid in the event of employer bankruptcy. Under the Payment of Gratuity Act, 1972, gratuity is paid to an employee who has completed five years of continuous service with an employer, or to an employee who has left service due to death, disability, old age or retrenchment. Often, a gratuity is given when an employee retires or resigns. It is given to the employee's nominee or legitimate heir in the event of death. The employee may get the gratuity payment in cash or by check.
Steps to claim gratuity from one’s ex-employer
The process to claim gratuity for an individual from their ex-employer is:
- Filing an application for gratuity: The employee must file an application for claiming gratuity with the employer. This application should be made in the prescribed format.
- Declaration by the employee: The employee must also submit a declaration to the employer, stating the details of the gratuity amount due to him or her.
- Employer’s acknowledgement of the application: The employer must acknowledge the application and the declaration submitted by the employee.
- Payment of gratuity amount: The employer must then make payment of the gratuity amount due to the employee within 30 days of the application being made.
- Submission of the gratuity amount to the appropriate authority: The employer must then submit the gratuity amount to the controlling authority or the appropriate government department.
- Claiming of gratuity from the authority: The employee can then claim the gratuity amount due to him/her from the controlling authority or the appropriate government department.
How do you calculate the gratuity amount for an employee?
To calculate the gratuity for an employee, you need to use the following formula:
Gratuity = (15 days' last drawn salary multiplied by the number of years of service) / 26
For example, if an employee has a last drawn salary of Rs. 50,000 and has worked for 5 years, then the gratuity amount will be calculated as follows:
Gratuity = (15 days' last drawn salary multiplied by the number of years of service) / 26
(50,000 x 5) / 26 = Gratuity.
Gratuity = Rs. 57,692
Also Read: How to get best out of the pension schemes?
Final words
Gratuity is a lump sum payment made by employers to employees in exchange for services rendered. To claim one’s gratuity, they need to fill out a form to request the gratuity amount from the concerned authority. And after the employer’s acceptance of the form, the amount will be transferred to the employee within 30 working days.
