Gratuity, a form of financial reward bestowed upon employees for their dedicated service, serves as a token of appreciation and financial security upon retirement, resignation, or in the event of death or disablement. Governed by the Payment of Gratuity Act, 1972, this benefit is a cornerstone of employee welfare and social security in India. Understanding the criteria for gratuity eligibility is essential for both employers and employees to ensure compliance with the law and facilitate a seamless process of gratuity payment.
What is 15/26 in gratuity calculation?
The ratio 15/26 in gratuity calculation is derived from the formula used to calculate the amount payable to an employee as a gratuity. Gratuity is calculated as a fraction of the monthly salary based on the number of years of service. The 15 represents the number of days of salary considered per year of service, while 26 represents the number of working days in a month. This ratio ensures that the gratuity amount is calculated accurately and fairly, reflecting the employee's length of service.
Understanding the gratuity formula
Once you have understood what is 15/26 in gratuity calculation, let’s take a look at how gratuity is calculated using the following formula:
Gratuity = (Last Drawn Salary × Number of Completed Years of Service × 15) / 26
Where:
- Last drawn salary: Includes basic salary, dearness allowance, and any commission based on sales.
- Number of completed years of service: Total years of service with the employer.
- 15/26: Represents 15 days of salary out of 26 working days in a month.
This formula is designed to ensure that the gratuity amount accurately reflects the employee’s contribution to the organisation over their period of service.
Significance of 15/26 in length of service calculation
Understood what is 15/26 in gratuity calculation? Let’s now understand the significance of 15/26 in length of service calculation. The significance of the 15/26 ratio lies in its role in prorating the monthly salary to account for the number of days considered for gratuity payment. Here’s why 15/26 is used:
- 15 days: The Payment of Gratuity Act, 1972, stipulates that gratuity should be calculated at the rate of 15 days of salary for each completed year of service.
- 26 days: This is the standard number of working days in a month, excluding Sundays and other holidays.
By using this ratio, the calculation ensures that employees receive an appropriate gratuity amount that reflects their service tenure fairly.
Application of 15/26 in gratuity calculation
Applying the 15/26 ratio in gratuity calculation involves the following steps:
- Calculate the total salary including basic pay, dearness allowance, and any commission based on sales.
- Determine the total number of years the employee has worked for the organisation.
- Use the formula (Last Drawn Salary × Number of Completed Years of Service × 15) / 26 to compute the gratuity amount.
For example, if an employee’s last drawn salary is Rs. 50,000 and they have completed 10 years of service, the gratuity would be:
Gratuity = (50,000 × 10 × 15) / 26 = Rs. 288,461.54
Exceptions and special cases
While the 15/26 ratio is standard, there are certain exceptions and special cases to consider:
- Death or disability: If an employee dies or becomes disabled before completing five years of service, the gratuity is still payable, and the 15/26 ratio applies.
- Seasonal employees: For seasonal employees, the employer calculates gratuity based on the average number of days worked in a season.
- Higher benefits by employer: Some employers may offer higher gratuity benefits, which can exceed the amount calculated using the 15/26 ratio.
Legal and regulatory considerations
The 15/26 ratio is mandated by the Payment of Gratuity Act, 1972, which governs the payment of gratuity to employees in India. Employers must comply with this regulation to ensure fair and legal payment of gratuity. The Act also provides for penalties in case of non-compliance or delay in payment. It is essential for both employers and employees to be aware of these legal requirements to ensure proper implementation.
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