Calculating Gratuity upon Completion of 5 Years of Service at a Company

Gratuity, often referred to as confined gratuity in some jurisdictions, is a payment made to an employee upon leaving the company after a certain period of service. The payment is calculated based on the employee's last drawn salary and length of service. In many countries, the formula for gratuity calculation is standardized, providing a framework for fair compensation.

Gratuity Calculation Formula

The formula for calculating gratuity is as follows:

Gratuity (last drawn salary) times; (number of years of service) times; 15 26

Let's break down the components:

Last Drawn Salary: This typically includes the basic salary plus dearness allowance (DA). Number of Years of Service: The duration for which the employee has served the company. 15: This represents the number of days for which gratuity is calculated for each year of service. 26: This is the number of working days in a month.

Example Calculation

Consider an example where the employee's last drawn salary is Rs. 30,000 per month and they have five years of service.

Define the variables: Last Drawn Salary Rs. 30,000 Number of Years of Service 5 Applying the formula: Gratuity (30,000 times; 5 times; 15) / 26 Gratuity 2,250,000 / 26 Gratuity 86,538.46

Therefore, the employee would receive approximately Rs. 86,538.46 as gratuity upon leaving the company after five years of service.

Important Notes

It is crucial to consider the following factors:

Eligibility: Generally, an employee must complete at least five years of continuous service to qualify for gratuity. Taxation: In some jurisdictions, gratuity might be subject to tax, depending on the local laws and the amount involved. Company Policy: Always review your company's specific policies, as they may have additional terms or different methods for calculating gratuity.

Company-Specific Conditions

Some companies, like Infosys, may offer gratuity even after 4.5 years of service. The formula used here is typically basic DA times; 15/22 times; no. of years. For an employee joining as a System Engineering Trainee, the gratuity after five years would be around Rs. 57,000. Understanding these conditions is vital for employees planning to leave the company.

For most cases, the gratuity amount is minimal and can often be ignored while considering job changes. However, knowing the details and being prepared can significantly impact your financial planning and decision-making process.