Payment Of Gratuity (Amendment) Bill Passed: What It Means For You?

After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central government employees was doubled to Rs. 20 lakh. This new Gratuity Bill is in tandem with the new pay commission.

The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks.

Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. The Gratuity Act applies to establishments employing 10 or more persons.

The amendment will provide social security to workers after retirement.

According to the current formula for formal sector workers, the amount of gratuity is determined directly by the tenure of service and also by the last drawn salary.

The gratuity is given at the rate of 15 days of salary for each year of service. And the salary that is considered for the calculation of gratuity is the last drawn salary.

It is typically 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 will be considered as five years.