What is Gratuity Fund?

A gratuity fund is a retirement benefits scheme provided to employees in India. It is a lump sum amount paid to an employee at the end of their employment tenure after continuous 5 years of service. 

Gratuity = (15*last drawn salary*work period)/26

Here,

• Last drawn salary is the basic salary plus dearness allowance.

• 26 is the working days of a month.

• Work period is the number of continuous years of service.

• 15 is the 15 days' salary for the month

Hey there,

Don’t we all love some appreciation for our hard work? I surely do and what better way to acknowledge your hard work than with some extra pay. I believe rewards are a great driving force towards hard work and productivity along with a good working environment. And gratuity is a form of reward that an employer gives to his/her employee in order to acknowledge and appreciate their hard work and services towards the company in the form of cash. This is what is gratuity fund. But there are certain rules under which an employee gets a gratuity fund. I will be explaining everything to you ahead of.

Gratuity in salary is the amount paid under the Payment of Gratuity Act 1972 to an employee. It is a component of an employee’s gross salary.

But an employee can receive a gratuity fund from an organisation only after he/she completes 5 or more years in the organisation. 

The following category of employees are eligible for receiving gratuity fund:

• The employees who are eligible for superannuation

• The employees who have worked for an organisation for at least 5 years and then have resigned

• The employees who have retired from work.

• The employees who suffer from a disability or have passed away due to an accident or an illness.

The employers use a very simple formula to calculate the gratuity fund for an employee which is;

Gratuity Fund= YxSx15/26

Here, Y refers to the number of years an employee has worked in a company,

and S refers to the amount of salary last drawn by the employee including DA amount.

I hope my explanation of what is gratuity fund was helpful to you.