Introduction
Gratuity is the payment made by the employer to his ex- employee for his past services. Gratuity is similar to a gift given by employer for appreciation of past services of his employee . The technical definition of gratuity given by ICAI is “gratuity is a voluntary payment made by an employer in appreciation of services rendered by employee .
Who is eligible for Gratuity ?
As per Payment of Gratuity Act 1972, any employee who has been in continuous service for 5 years is eligible for gratuity .
During the above mentioned 5 years , employee is eligible for casual leave and sick leave without affecting his eligibility.
In case of death of an employee , the above condition 5 Years of continuous service is not applicable i.e. even if an employee dies after 2 years of service , he/she is still eligible for gratuity . How is gratuity calculated? a) Gratuity calculation formula for employees receiving monthly salary (15/26) * Last Salary Drawn * Completed years of service

When calculating completed years of service , if an employee worked for more than 6 months , it will be considered as full year .
Example : Employee worked for 14 years and 7 month , then completed years of service = 15 years
Example: Employee worked for 14 years and 5 months ,then completed years of service = 14 years
Example: Employee worked for 14 years and 6 months, then completed years of service = 14 years
Last salary drawn = basic salary + dearness allowance b) Gratuity calculation formula for piece rated employees
( workers receiving payment on the basis of the number of pieces produced )
Gratuity shall be calculated as follows: Last drawn wages *15/26 *completed years of service * Completed years of service are calculated in the same way as for employees receiving monthly salary. * Last drawn wages are computed by taking average of the