How this instrument works
Gratuity is a lump-sum benefit an employer owes an employee for continuous service, not a bonus and not a negotiated perk. Under India's Payment of Gratuity Act, 1972, the amount is fixed by statute at fifteen days of wages for every completed year worked, computed from the last drawn monthly salary rather than any career average or lifetime total.
The divisor of 26 converts that monthly figure into a single day's wage under the assumption of a six-day working week — the four weekly rest days a month are set aside from the 30 or 31 calendar days, leaving 26 as the working-day base. Multiplying that daily rate by 15 credits roughly half a month's pay for each year served, then multiplying again by years of service produces the total owed.
The formula leaves several things out worth naming. It runs on basic pay plus dearness allowance, not gross salary or total cost-to-company. It assumes the years figure you enter already reflects the Act's own rounding rule, where service beyond a completed year rounds up only past the six-month mark. And it does not apply the statutory ceiling — currently ₹20 lakh, roughly $24,000 — that caps what a very high earner or a very long tenure can actually collect.
- Enter the Last drawn monthly salary using basic pay plus dearness allowance, not gross salary or total CTC.
- Set Years of service to the number of completed years, already rounded per the Act's six-month rule.
- Read Gratuity payable — the exact lump sum the fifteen-days-per-year formula produces for those two figures.
- Change one field at a time to see whether salary or tenure moves the payout more for your own numbers.
Worked example — eight years at $1,500 a month
Take an employee whose last drawn monthly salary is $1,500, with 8 completed years of service. The formula runs (1,500 × 15 × 8) ⁄ 26, which is 180,000 ⁄ 26 = $6,923.076923..., shown here as $6,923.08 — the exact statutory lump sum those two figures produce, with no rounding applied until the final cent.
Move both inputs at once and the payout shifts faster than either alone would suggest. A $3,000 salary over 16 years — double each figure from above — runs (3,000 × 15 × 16) ⁄ 26 = $27,692.31, four times the original result, because the formula multiplies salary and years rather than adding them. The eight-year mark also matters for a separate reason: under the Act, the entitlement itself only vests once continuous service reaches five completed years, so this employee's gratuity is a real, payable sum, not just an arithmetic exercise.
Questions
Why is the formula fifteen days times years, divided by twenty-six?
The 15 stands for half a month's wages credited for every completed year of service, a fraction fixed by India's Payment of Gratuity Act, 1972. The 26 converts a full month's salary into one day's wage under a six-day working week, rather than dividing by 30 or 31 calendar days. Multiply that daily rate by 15, then by years served, and the result is the statutory lump sum.
Does gratuity start building up from an employee's first day of work?
No. This instrument returns a figure for any years value you enter, but the underlying legal entitlement only vests after five completed years of continuous service, with an exception for death or disability. Someone who leaves after four years is owed nothing under the Act, regardless of what the raw formula would otherwise compute.
What exactly counts as the last drawn monthly salary?
Basic pay plus dearness allowance — not gross salary and not total cost-to-company, which can bundle in bonuses, allowances, and employer contributions the statute excludes. Entering a full CTC figure here overstates the payout; the correct number sits on a payslip's basic-plus-DA line, not the headline salary figure.
Is there a cap on how much gratuity a person can receive?
Yes. India's Payment of Gratuity Act sets a statutory ceiling on the amount payable — raised to ₹20 lakh, roughly $24,000, by a 2018 amendment — no matter how large the raw formula result comes out for a high salary or a long tenure. This instrument does not apply that ceiling automatically; treat any result above it as capped by law, not by the arithmetic shown here.
How should a fractional year of service be entered?
Round it first, using the Act's own rule: service beyond a completed year that exceeds six months rounds up to the next full year, and six months or less rounds down. Enter that rounded whole number in Years of service — this instrument does not do the rounding for you, so a raw decimal like 8.5 will misstate the figure the statute actually uses.
Why does doubling both inputs more than double the payout?
Because the formula multiplies salary and years together rather than adding them, it is linear in each variable alone but compounds once both move at the same time. Doubling salary alone doubles the payout, and doubling years alone doubles it again — do both together, as with $3,000 over 16 years against $1,500 over 8, and the result is four times as large: $27,692.31 versus $6,923.08.
References
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.