Are There Any Specific Regulations or Formulas Used in a Gratuity Calculator?

A gratuity calculator has made it easy for people to calculate their gratuity. But if you are new to this term, you need to learn from the basics. Gratuity represents the amount which is paid by an employer to his employee in return for the services offered to the company of the employer.

But gratuity is given only to those employees who have entertained a minimum employment term for 5 years and is governed by the Payment of Gratuity Act, 1927. Let’s learn whether there are any specific regulations or formulas used in the Gratuity calculator.

What Is A Gratuity Calculator?

A gratuity calculator is one of the most common types of financial calculators that calculates the amount of gratuity on the basis of a particular formula. It is a tool that offers employees an estimate of the amount they will receive once they quit the job after offering continuous service for five years in a particular company.

In order to calculate the gratuity amount, some key inputs are required. These typically include the tenure of service of the employee, the employee’s last drawn salary, and the employee’s total number of working days in a month.

The calculator uses these inputs and the relevant formula s per the labour laws of the country; it calculates the gratuity amount.

Are There Any Specific Regulations or Formulas Used in a Gratuity Calculator?

Yes, there are specific regulations and formulas that are used in the gratuity calculator, which are explained below in detail.

The formula for gratuity calculation:

15* the last salary drawn* total working tenure in the company/ 26.

On entering the inputs of the tenure of service and the last drawn salary, the gratuity calculator will automatically show the entire gratuity amount in seconds.

For instance, an employee served a company named XYZ for 15 long years, where he used to draw Rs. 40,000 as his basic salary along with an allowance for dearness. In such case, the gratuity amount will be:

15 * 40,000 * 15 / 26 = Rs. 3,46,153

However, there are also some regulations that you need to keep in mind while calculating gratuity amount; these are:

According to Gratuity Act, the gratuity amount can’t exceed Rs. 20 Lakhs. If the amount exceeds, it will be assumed as ex-gratia.

During the last employment year, if your total number of working moth is more than six, the gratuity amount will be rounded off to the closest figure. For instance, let’s suppose the tenure of service is 10 years and 8 months; you will get a gratuity for 11 years. In the case of 10 years and 4 months, you would only get the gratuity for 16 years.

If an employee is not covered under Gratuity Act, the amount of gratuity will be calculated as per the salary of half month on completion of each year of service. Then the formula would be:

15* last salary drawn* tenure of service / 30. 

Conclusion:

Therefore gratuity calculator offers a convenient tool for assuming the gratuity amount, which may also help one in making an informed financial decision and plan accordingly.