Gratuity is a term used to describe a type of benefit that an employee receives from their employer as a form of appreciation for their service. The gratuity is a lump sum payment made by an employer to an employee, typically at the time of retirement, resignation, or termination of employment. This payment is usually made as a way of recognizing an employee’s years of service to the company. Now, we will understand about Gratuity Meaning in the following paragraphs, have a look as under:
A gratuity is a form of retirement benefit that is given by an employer to an employee who has completed a certain period of service. The amount of gratuity paid to an employee is determined by a formula that takes into account the employee’s years of service, their last drawn salary, and other factors. In most cases, the gratuity payment is equivalent to 15 days of the employee’s last drawn salary for every year of completed service with Form 15G.
In India, gratuity is governed by the Payment of Gratuity Act, of 1972. According to this act, all employers who have ten or more employees are required to provide gratuity to their employees. The act also states that employees who have worked for a continuous period of five years or more are eligible to receive gratuity and understand Gratuity Meaning.
The gratuity payment is an important benefit for employees as it serves as a form of financial security for them during their retirement years. It is also a way for employers to show their appreciation for the hard work and dedication of their employees over the years.
It is important to note that the payment of gratuity is not mandatory for all employers in all countries. The laws governing the payment of gratuity vary from country to country. In some countries, gratuity is not required by law, but employers may still choose to provide this benefit to their employees as a form of recognition for their service with Form 15G.
To be eligible for gratuity, an employee must have completed a minimum of five years of continuous service with their employer. This means that if an employee resigns or is terminated before completing five years of service, they will not be eligible to receive gratuity. However, if an employee dies while in service, their nominee or legal heir will be eligible to receive gratuity.
The gratuity amount is calculated based on the employee’s last drawn salary and the number of years of service. The formula for calculating the gratuity payment is as follows:
Gratuity = (Last drawn salary x 15 x number of years of service) / 26
In this formula, the number 15 represents the number of days of salary that an employee is entitled to for every year of completed service. The number 26 represents the number of working days in a month. Thus you can easily understand the Gratuity Meaning.
It is important to note that the gratuity payment is subject to a maximum limit. According to the Payment of Gratuity Act, the maximum amount of gratuity that can be paid to an employee is Rs. 20 lakhs. This means that even if an employee’s gratuity amount is calculated to be more than Rs. 20 lakhs, the maximum amount that can be paid to them is Rs. 20 lakhs.
