Loyalty Pays

wealthymatters.comJob-hopping can increase your pay, but good old loyalty also has its perks. Stay on with your employer for five years or more, and you are entitled to gratuity when you resign, retire or are retrenched. This monetary reward to be paid by your employer in recognition of your years of service is mandated by the Payment of Gratuity Act. Most establishments employing 10 or more workers fall under the Act.

The amount you get as gratuity depends on the number of years you have served and the last drawn monthly salary. Roughly, you get half a month’s Basic and DA for every completed year of service. Here’s the formula to calculate gratuity: (Number of years of service) * (Last drawn monthly Basic and DA) *15/26. So, if you have served 30 years and draw monthly Basic and DA of Rs 20,000 when you leave the job, you get gratuity of Rs 3,46,154 calculated as (30 * 20,000 *15/26). Your employer can choose to pay you more but the maximum amount of gratuity according to the Act cannot exceed Rs 10 lakh. Amount paid above this will be in the nature of ex-gratia — something voluntary and not mandated according to law.

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