Gratuity is calculated based on the number of years an employee has worked with an organization and their last drawn salary. In India, the gratuity amount is calculated using the following formula:
Gratuity = (Last drawn salary x 15 x Number of years worked) / 26
Where,
Last drawn salary: the basic salary plus dearness allowance (if applicable) of the employee at the time of leaving the job.
15: represents the number of days in a month
26: represents the number of working days in a month
Assuming that the employee has completed 5 years of continuous service, and their last drawn salary was Rs. 12 lakh per annum, their gratuity amount would be:
Gratuity = (12,00,000 x 15 x 5) / 26 Gratuity = Rs. 13,84,615.38
Therefore, the gratuity amount for this employee after 5 years of service would be Rs. 13,84,615.38.
If the salary of the employee was Rs. 20,000 per month in the 4th year and Rs. 60,000 per month in the 5th year, then the gratuity amount would be calculated as follows:
Average Last drawn salary = (Salary in 4th year + Salary in 5th year) / 2
Average Last drawn salary = (Rs. 20,000 x 12 + Rs. 60,000 x 12) / 2
Average Last drawn salary = Rs. 4,80,000 per annum
Gratuity = (Average Last drawn salary x 15 x Number of years worked) / 26
Gratuity = (Rs. 4,80,000 x 15 x 5) / 26
Gratuity = Rs. 4,41,923.08
Therefore, the gratuity amount for this employee after 5 years of continuous service, with a salary of Rs. 20,000 in the 4th year and Rs. 60,000 in the 5th year, would be Rs. 4,41,923.08.
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