We Bet You Don’t Know These Facts About Gratuity

Having good knowledge about gratuity is very important, especially if you are an HR manager. Although gratuity is a well-known employee benefit, there are still many people who do not have a clear understanding of it. Taking this into account, we have included some critical facts about gratuity that every working individual should know. From it’s meaning to its significance, we will help you learn a host of things in this blog. So, let’s dive in.

Understanding Gratuity

For people who do not know, it is derived from the word ‘gratuitous’ that typically means ‘complimentary’. Every employer in India is bound to pay this employee benefit to his or her employees. It is given as a token of appreciation for an individual’s hard work, dedication, and time invested in an organization.

How Can One Calculate It?

Most of you may think that calculating gratuity is a complicated process; however, it is not true.

If known the trick, anyone and everyone can calculate it without any challenge. So, if you want to calculate your gratuity, you should know that the whole calculation depends on two major factors, which are-

Your total employment period
Your last drawn salary

Now, here is the Formulae- last drawn salary X no. of the employment period

If you do not have enough time to do the whole calculation manually, you can also rely on an online gratuity calculator.

Using a gratuity calculator, you can know your total gratuity amount in just a fraction of time. It is one of the easiest ways to calculate one’s gratuity.


According to the Income-tax Act, 1961, the gratuity amount is exempted from tax up to a specified limit.

Who is Eligible For It?

To get gratuity, there is only one condition that should be met by a person. He or she is supposed to complete 5 five years employment period in the firm.

Furthermore, you even request this amount even before completed 5 years but there are a few conditions for the same, which are mentioned below:

If the person dies
If the individual becomes disabled
In both the aforementioned cases, the payment can be made before the specified time period.

Also, every employer out there holds the right to forfeit this payment both entirely or partially. This can happen only if an employee was fired after any wrong or unprofessional actions or when he/she tried to physically harm another worker during his employment period.

Key Notes For Employers

The Payment of Gratuity Act applies to every company and business in India that has 10 or more headcounts. In India, it is considered one of the important forms of social security in which a part of the salary is acquired by an employee from his or her employer in return for their valuable services for the growth of the firm.

Employers should know that gratuity payment is a statutory requirement and failure to pay this amount to an employee is subjected to several serious punishments such as fines, and imprisonment of six months that can extend to two years. So, it is the responsibility of employers to know the importance of this payment.

That is it, these are some vital information about gratuity everyone should be clear about.

Now, HR professionals may find it a time-consuming process to calculate each employee’s gratuity amount amid managing other HR operations. This is when HRMS software comes into play. Such systems are automated software tools that allow HRs to calculate gratuity in just a few clicks. The right software can handle gratuity and look after all necessitating needs of an employee’s settlements during his or her resignation. So, it is highly recommended to every company leave behind manual methods and consider an HRMS login as soon as possible. Now that we have helped you to understand gratuity, gratuity calculator, and even suggested a digital solution for your business, help your employees and educate them as well.