Demystifying gratuity calculation: A comprehensive guide to estimating your employee benefits

Gratuity is one of the most important employee benefits that every employee is entitled to receive. It is a lump sum amount paid by an employer to an employee as a token of appreciation for their service. It is a statutory benefit and is defined under the payment of gratuity Act, 1972. However, calculating gratuity can be confusing, and it is essential to understand the process to estimate your employee benefits. This article provides a comprehensive guide to demystify gratuity calculation and how to use a fixed deposit interest calculator to estimate your employee benefits.

The gratuity calculation formula based on the employee’s tenure of service and the last drawn salary. It is a formula-based calculation, and the formula varies based on whether an employee is covered under the payment of gratuity Act or not. In the case of an employee covered under the Act, the following formula is used –

Gratuity = (Last drawn salary x 15 x tenure of service) / 26

In this formula, the last drawn salary refers to the basic salary plus dearness allowance paid to the employee in the last month of employment. The tenure of service refers to the number of years and months served by the employee. The denominator 26 represents the number of working days in a month.

Suppose an employee has worked for 15 years and 7 months, and the last drawn salary is INR 50,000. The gratuity calculation would be:

(50,000 x 15 x 15.5)/26 = INR 4,49,038.46

This calculation provides an approximate amount of gratuity that the employer is liable to pay the employee.

However, calculating gratuity benefits is just the first step. The employee can choose to invest the gratuity amount to earn higher returns and secure their future. One of the most popular investment options is a fixed deposit scheme.

Fixed deposits offer guaranteed returns on investment and are considered one of the safest investment options available. The earnings from fixed deposits can be calculated using a fixed deposit interest calculator. The calculator takes into account the principal investment amount, the FD tenure, and the interest rate provided by the bank. It calculates the approximate maturity amount to provide investors with an estimate of the returns they can expect.

For example, if an employee receives INR 4,49,038.46 as gratuity and chooses to invest it in a fixed deposit with a tenure of 5 years and an interest rate of 6%, the maturity amount would be:

Maturity amount = Principal amount x (1 + Interest Rate/4)^(4 x tenure in years)

= INR 4,49,038.46 x (1 + 0.06/4)^(4 x 5)

= INR 6,08,868.59

The employee can use a fixed deposit interest calculator to estimate their returns from investing the gratuity amount and make an informed investment decision.

Investing in fixed deposits using gratuity benefits presents an opportunity to secure one’s future and enjoy a stable and steady stream of income. FD offer high return investment compared to savings accounts and other investment options, making it an ideal choice for risk-averse investors.

To get started with investing in fixed deposits, employees should choose a bank or financial institution that offers competitive interest rates. The best fixed deposit rates in India can be found by conducting some research and comparing the rates offered by various financial institutions.

Additionally, employees should also consider other factors such as the tenure of the fixed deposit, the compounding frequency, and any additional fees or charges levied by the bank. Using a fixed deposit interest calculator can help employees determine the best investment option based on their investment goals and risk appetite.

In conclusion, understanding gratuity calculation is crucial for estimating employees’ benefits accurately. The gratuity amount can be invested wisely to earn higher returns and secure one’s future. Fixed deposits offer a safe and reliable investment option with higher returns compared to savings accounts. Employees can use a fixed deposit interest calculator to estimate their returns and make an informed investment decision. By choosing the right investment option and utilising gratuity benefits wisely, employees can ensure a secure and stable financial future.

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