According to the Payment of Gratuity Act 1972, if an employee dies before completion of 5 years or becomes disabled and is no longer in a working condition, does the 5-year rule apply? Know about it here.
Gratuity is the amount that is given to an employee on behalf of the organization or employer where he was working. But to get this amount, the employee has to serve that company with complete honesty for 5 consecutive years. He gets the amount of gratuity either on leaving the job or at the time of retirement.
According to the Gratuity Payment Act 1972, the maximum amount of gratuity that can be given to any person is Rs 20 lakh. But if an employee dies before the completion of 5 years or becomes disabled and is no longer able to work, does the 5-year rule still apply? Let us tell you about it.
This is the rule
According to the Gratuity Act 1972, if an employee dies due to accident or becomes disabled, then the rule of working for 5 years does not apply to him. In this case, the amount of gratuity is paid to the nominee or dependent. You can register the name of the nominee for your gratuity amount by filling Form F while joining the job. If the employee becomes disabled in an accident and is unable to work again, he can claim gratuity even without completing the period of 5 years. But in these situations the amount of gratuity is calculated on the basis of duration of job.
This is how it is calculated
- In case of employment for less than 1 year, double the amount of basic salary is given as gratuity.
- For more than 1 year but less than 5 years, 6 times the basic salary is given.
- For more than 5 years but less than 11 years, 12 times the basic salary is given.
- If the age is more than 11 years but less than 20 years, up to 20 times the basic salary is given as gratuity.
- Those working for 20 years or more are given 33 times their basic salary.
How is gratuity generally determined?
Generally, there is a fixed formula for fixing the amount of gratuity. This formula is – (last salary) x (number of years worked in the company) x (15/26). Last salary means the average of your last 10 months salary. Basic salary, dearness allowance and commission are included in this salary. Due to 4 days of Sunday being week off in a month, 26 days are counted and gratuity is calculated on the basis of 15 days.
Which institutions come under the purview of the Act?
Any such organization where 10 or more employees have worked on any one day during the last 12 months, then that organization comes under the Gratuity Payment Act. Once it comes under the purview of the Gratuity Act, that organization remains within the purview of the Act, even if the number of employees in it decreases. In gratuity, the entire money is given by the employer. There is no contribution from the employee’s salary in this.
