SEO Title: How to Calculate Gratuity in India | Formula and Payroll Guide
Meta Description: Learn the basics of gratuity calculation in India, the commonly used formula, eligibility considerations and the role of HR and payroll professionals.
Gratuity is an important employee benefit that HR and payroll professionals may need to understand while managing employee separations and Full & Final Settlements.
What Is Gratuity?
Gratuity is a terminal benefit that may become payable to eligible employees under applicable laws and employment conditions.
Eligibility and calculation should always be determined according to the current legal provisions and the specific circumstances of the employee.
Common Gratuity Formula
For eligible employees covered under the relevant provisions, a commonly used formula is:
Gratuity = Last Drawn Eligible Salary × 15 × Completed Years of Service ÷ 26
The salary components considered and the treatment of service periods should be checked against applicable legal requirements.
Example
Suppose the applicable last drawn salary is ₹30,000 and the recognised completed service period is 10 years.
Gratuity = ₹30,000 × 15 × 10 ÷ 26
Gratuity = ₹173,076.92
This is only an illustrative calculation. Actual eligibility and calculation should be verified according to current legal requirements and the employee's specific circumstances.
Role of HR and Payroll
HR and payroll professionals may need to:
Maintain employee service records
Verify joining and separation dates
Review salary information
Calculate eligible settlement components
Coordinate the Full & Final Settlement process
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