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What is 15/26 in Gratuity Calculation? Explained in Detail



Gratuity is an essential component of employee benefits in India, reflecting an employer's gratitude for years of service. Among its key elements is the 15/26 formula, an integral part of the calculation. This article explores the meaning, significance, and application of 15/26 in gratuity calculation under gratuity rules, providing examples and insights into its implications.

Understanding Gratuity

Gratuity is a lump-sum payment made by employers to employees as a token of appreciation for their service. It is governed by the Payment of Gratuity Act, 1972, and applies to employees who have worked for at least five years in a company. However, there are exceptions for cases such as death or disability where the five-year rule may not apply.

The Role of 15/26 in Gratuity Calculation

The fraction 15/26 plays a pivotal role in determining the gratuity amount. Here's a breakdown of what it means:

  • 15: Represents the number of days’ salary considered for gratuity calculation in a month.
  • 26: Denotes the total number of working days in a month (excluding weekends).

Thus, 15/26 represents the proportion of the monthly salary that is factored into gratuity for each completed year of service.

Gratuity Calculation Formula

The general formula to calculate gratuity is:

Gratuity = (Basic Salary + Dearness Allowance) × 15/26 × Completed Years of Service

Example of Gratuity Calculation

Let’s calculate gratuity for an employee with the following details:

  • Basic Salary + Dearness Allowance: ₹50,000
  • Years of Service: 10 years

Using the formula:
Gratuity = ₹50,000 × 15/26 × 10

Step-by-Step Calculation:

  1. Monthly salary proportion:
    15/26×50,000=28,846.1515/26 × ₹50,000 = ₹28,846.15

  2. Multiply by years of service:
    28,846.15×10=2,88,461.50₹28,846.15 × 10 = ₹2,88,461.50

Gratuity Amount:

The employee is entitled to ₹2,88,462 (rounded off).

Role of 15/26 in Gratuity Calculation

Key Rules Governing Gratuity

Understanding the rules around gratuity is crucial for both employers and employees. Here are some highlights:

AspectDetails
EligibilityMinimum of 5 years of continuous service (exceptions for death/disability).
Calculation BasisBasic salary and dearness allowance are considered.
Maximum Gratuity PayableCapped at ₹20 lakh under the Payment of Gratuity Act, 1972.
Tax ImplicationsTax-free up to ₹20 lakh for employees covered under the Act.
Gratuity for Seasonal WorkCalculated differently, based on 7 days’ wages for each completed year.

How 15/26 Impacts Gratuity

The 15/26 ratio ensures fairness in gratuity calculations by standardizing the number of days considered for payment. Here’s why it matters:

  1. Consistency: It provides a uniform calculation method across industries.
  2. Employer Obligation: Simplifies compliance with gratuity laws.
  3. Employee Benefit: Ensures a fair calculation, reflecting the number of actual working days.

Gratuity Percentage Breakdown

The 15/26 ratio translates to approximately 57.69%. This means an employee receives about 57.69% of their monthly salary for each year of service.

ComponentPercentage
Days considered (15)57.69% of monthly salary
Working days (26)Full month equivalent

Common Queries on Gratuity and 15/26

1. Why is 15/26 used instead of 30/31?

The 15/26 formula excludes weekends, aligning with the concept of "working days" in a month.

2. Is the 15/26 calculation applicable to all employees?

Yes, it applies to employees covered under the Payment of Gratuity Act, 1972, provided they meet eligibility criteria.

3. Can an employer offer gratuity exceeding the formula?

Yes, employers can provide additional gratuity benefits, but these are not mandated by law.

Conclusion

The 15/26 formula is a cornerstone of gratuity calculations in India. By standardizing the proportion of salary to be considered, it ensures equitable treatment for employees. Whether you’re an employer or an employee, understanding this ratio, along with the gratuity rules, is essential for accurate financial planning and compliance.

By grasping the nuances of gratuity calculations, you can better manage expectations, plan finances, and ensure adherence to regulations under the Payment of Gratuity Act, 1972.

FAQ

What does 15/26 mean in gratuity calculation?

15/26 represents the fraction of monthly salary (15 days out of 26 working days) used in gratuity calculations for each year of service.

Why is 15/26 used instead of 30 or 31 days?

The 15/26 formula considers only working days, excluding weekends, for a fair gratuity payout calculation.

Who is eligible for gratuity under the 15/26 formula?

Employees who have completed at least 5 years of continuous service are eligible for gratuity under the 15/26 calculation formula.

How is gratuity calculated using 15/26?

Gratuity = (Basic Salary + Dearness Allowance) × 15/26 × Completed Years of Service. For example, ₹50,000 basic salary for 10 years equals ₹2,88,462.

Is gratuity capped under the 15/26 rule?

Yes, gratuity is capped at ₹20 lakh for employees covered under the Payment of Gratuity Act, 1972.

Can employers offer more gratuity than the 15/26 formula?

Yes, employers can provide gratuity exceeding the legal formula as part of company policy, but it is not mandatory.

Are there tax implications for gratuity payouts?

Gratuity is tax-free up to ₹20 lakh for employees covered under the Payment of Gratuity Act, 1972. Amounts beyond this are taxable.

What happens if an employee doesn’t complete 5 years?

Employees who haven’t completed 5 years are generally not eligible, except in cases of death or disability.

How is gratuity calculated for seasonal employees?

Seasonal employees receive gratuity based on 7 days' wages for each completed year of service, instead of the 15/26 formula.

What components of salary are considered in gratuity calculation?

Only the basic salary and dearness allowance are considered while calculating gratuity.

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