Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job.
How Gratuity is Calculated
The gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, the time period of over six months or more is considered as one year.
This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit.
On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered five years. An employer can however give higher gratuity than the amount under the prescribed formula.