Gratuity computation for continuity of service

PF and Gratuity are covered under Social Security Laws. Application of gratuity shall be governed by its rules and acts. In case of a dispute or suo motto notice the Controlling Authority which may be DLC in your case has to take appropriate views of all the documents on record, and relate to law.

It is good that now your comapny has availed the services of a consultant.What is the role and benefit of the letter by employees, expressed to you by your consultant? The DLC of your area may not agree to the calculation of gratuity by the employee. Probably your consultant wants to save you from the burden of paying gratuity on lump sum salary. You have already set a precedence of payment based on lump sum salary.

Employee can get gratuity amount if he works in an organization employing 10 or more people, and if he has completed 5 years in your job.

He gets half a month’s salary (last drawn salary and that is Basic+ DA) for each completed year in service in the organization. Thus, if he resigns after serving for 6 years, you get an amount equal to 3 months salary as gratuity.

(Basic+DA/26)*15 days of wages *Number of years in service.

You have been paying gratuity to employee(s).You have paid gratuity taking 100% of gross as basic. No questions are asked.

D.A. is calculated as a percent of the basic salary. This amount is then added to the basic salary. Refer Minimum Wages Act of your state and look into % of DA for each category of employees.

Now you have introduced basic and DA in salary structure and must have issued salary slips. It is believed that there is no shortfall in gross earning of the employee, and no objection. Once you have computed DA in basic salary, and reflected HRA in salary slip, while calculating gratuity you may take Basic Salary.

DA is percentage of basic salary and taken as percentage increase over base CPI (Consumer Price Index) to Current average CPI. Base CPI (say 50) is decided as reference. Current average CPI (say 75) is taken for current quarter. Thus DA shall be 50%.

Valuable advice of learned experts/members is sought.