Gratuity Calculator: How to Calculate Gratuity in 2022?

What is a Gratuity?

Gratuity is the amount given to an employee after they retire from the job or quit it. Gratuity is simply a token of gratitude and thanks given to the employees by the employer for the services they have provided so far. To quickly calculate your gratuity, you can use a gratuity calculator.

Employees need to spend at least 5 years in the service to be eligible for gratuity. Also, the employer provides gratuity completely from their end. So, employees do not have to make any contribution to it. Some companies are covered under the Gratuity Act and some are not. However, companies with more than 10 employees are subject to providing gratuity to their employees.

What is a Gratuity Calculator?

In order to calculate your gratuity, you can use the gratuity calculator. It is an online digital tool that quickly calculates the gratuity you will be eligible to receive. It requires you to provide the inputs as asked and automatically, the math will be done and the result shown to you.

How to use gratuity calculator?

Using a gratuity calculator is a matter of a few minutes. Visit the gratuity calculator on any preferred bank// financial company’s website. Here you need to enter your basic salary and the number of years of service. Submit and the result will be shown within a few seconds.

How to calculate gratuity for private-sector employees

The formula for the gratuity calculation for private-sector employees is the same as that of government sector employees. The difference lies in the companies that do not come under the Gratuity Act of the Indian government.

Private companies that fall under the Gratuity Act take 26 days of a month to calculate gratuity. However, companies that do not fall under the Gratuity Act, take 30 days of a month for gratuity calculation.

How to calculate retirement gratuity

Retirement gratuity refers to the gratuity that an employee receives upon gratuity and not due to resignation or death during service tenure.

Upon retirement, 1/4th of the last drawn basic salary of a month including Dearness Allowance is taken into account to calculate the gratuity of an employee. If an employee retires after 20 years of service, for every next 6 months, half the month's basic salary is taken into account.

What are 15 and 26 in gratuity calculation

When you look closely at the formula of the gratuity calculation, you will notice 15/ 26. So, what does this 15/26 refer to? Is this what you are wondering? If so, there's nothing to stress much about.

The 15/26 in the gratuity calculation formula refers to the number of working days of a month. For those companies and employees who are covered under the Gratuity Act, they follow the method of 15/26. Here – 15 refers to the 15 working days of a month 26 refers to the 26 days of a month

So, the basic pay of 15 days out of 26 days of a month is taken into consideration while calculating the gratuity. In the case of companies out of the Gratuity Act, 26 is replaced with 30 working days of a month.

Gratuity Calculator after Seventh Pay Commission

The 7th pay commission brought some changes in the gratuity calculation of an employee along with several other announcements. It is vital to note that the earlier cap on maximum gratuity limit was ₹10 lakh. However, with the 7th pay commission, this cap has been extended to ₹20 lakh per employee. So, if you provide excellent service, you do not have to limit your gratuity till ₹10 lakh. Now, it can be extended till ₹20 lakh.

How to Calculate gratuity for Defence Employees

The defence employees are also eligible for the gratuity like other service employees. The basic criteria is to complete a minimum of 5 years in the service before retirement from the job.

An employee of defence gets the gratuity on the basis of 1/4th of the reckonable emoluments for every 6 months completed after the 5 years of qualifying service in defence. It can go to a maximum of ₹20 lakh for an employee and cannot exceed this limit.

How to calculate gratuity for bankers?

The bank employees are also the eligible employees for the gratuity as stated so far. For the employees of SBI, the calculation of gratuity is done under the method of Gratuity Act of the government. Here, 15/26 rule is taken into consideration.

Another way of calculating the gratuity is the BPS (Bipartite Settlement). Under this rule, every bank employee's gratuity calculation needs to be done via both the methods- Gratuity Act and the provision of BPS. The one that is higher is paid as gratuity to the employee.

The basic difference between the BPS method and the Gratuity Act calculation method is the way they are calculated. In BPS, the excess of service after 6 months is not rounded off to the larger value unlike the Gratuity Act. This means, if a scale ll employee of a bank retires after a service of 32 years and 8 months, his gratuity will be calculated on 32 years and not 33 years. However, under the Gratuity Act, the same officer's gratuity will be calculated for 33 years.

How to calculate death gratuity?

Gratuity is received at the end of the service. However, an employee may suffer an unfortunate death during the service tenure. Even in such a situation, the gratuity is provided to the nominee of the employee. The formula remains the same. Refer to the table below to understand how it is calculated –

Note: After 20 years if you complete less than 6 months, it will be rounded off to the lower value. However, if 6 months or more are completed, then the year of service will be rounded off to the larger value.