How To Calculate Gratuity For Private Companies

If you are working in a private company for a very long time, have you ever wondered how gratuity is calculated in your company? Is there any change in gratuity calculation for a private company?

According to the gratuity act, Gratuity calculation is based on your last drawn salary, years of continuous employment and the number of employees in your organization. This rule is applicable in all organizations operating under this law whether it is private or government.

With this statement, you must have understood that it is mandatory to provide a gratuity to the person who is working in your organization but there are certain rules under which gratuity is provided to the individual.

When gratuity is given to the person -

  • When he retires in his old age,
  • When he leaves the organization after working continuously for five years at least,
  • When the working employee becomes paralyzed or he is dead while working.

These three are the major reasons behind providing a gratuity to an individual but the calculation of gratuity can be different, depending upon the company.

Gratuity Calculation For Private Company

The gratuity act is made by the government in1972 and it states any company, whether it may be private of government are responsible for clearing the gratuity of a person in the same procedure and the same calculation formula must be used to calculate the gratuity of any individual.
So, there is no other formula that is evaluated to calculate gratuity for a private company. The only thing important is the condition that needs to be filled by both private and government organizations to give away the gratuity.

How Gratuity Is Calculated

Use this simple formula to compute the gratuity amount if your company is covered under the gratuity act.

Last Drawn Salary * Years Of Employment * 15 / 26

Use this formula to compute the gratuity amount if your company is not covered under the gratuity act.

Last Drawn Salary * Years Of Employment * 15 / 30

Notes:

  • The last drawn salary is your basic salary plus your dearness allowances.
  • Years of employment must be continuous for at least 5 years.

Understanding Gratuity Calculation With Example

Question - Suppose you are working in a private company that is covered under the gratuity act from the past 25 years and you get retired with last drawn salary of 80,000 including all your allowances so what will be your gratuity amount?

Solution :

--Last drawn salary - 80,000

--Years of employment - 25

Put these values in the formula-

= 11,53,846

This is the way your gratuity amount is calculated whether you are working in a private company or any government company. But the amount can vary from company to company as per their norms and condition but all the major companies us this formula only to compute your gratuity amount.

Maybe you can get some extra amount over your original gratuity amount and maybe you can get a little less than your gratuity amount. Both the cases prevail while clearing out the gratuity.

Gratuity Calculation For Private Company