Gratuity Calculation Error: What to Do Next

Reviewed on: 2026-05-30.

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When your employer calculates gratuity incorrectly, here is the complete guide:

1. Step 1: What is gratuity? (a) gratuity is a lump-sum payment made by the employer to the employee on retirement/resignation/death/disablement (under the Payment of Gratuity Act 1972), (b) eligibility: (i) 5 years of continuous service (or 4 years 240 days — as per Supreme Court), (ii) the establishment must be covered by the Act (10+ employees), © gratuity is tax-free up to Rs 20 lakhs (as per the Income Tax Act — the limit was increased from Rs 10 lakhs to Rs 20 lakhs in 2018).
2. Step 2: Correct formula. (a) for employees covered by the Act: Gratuity = Last drawn salary (Basic + DA) x 15/26 x number of years of service (the 15/26 factor accounts for 15 days per year — and 26 working days per month (6-day week)), (b) for employees NOT covered by the Act: Gratuity = Last drawn salary (Basic + DA) x 15/30 x number of years of service (the 15/30 factor is used — 30 days per month), © “Last drawn salary” means Basic + Dearness Allowance (NOT gross salary — HRA, conveyance, and other allowances are NOT included), (d) “Number of years of service” is rounded to the nearest full year (e.g., 6 years 8 months = 7 years — more than 6 months is rounded up).
3. Step 3: Common calculation errors. (a) using gross salary instead of Basic + DA (the employer includes HRA, conveyance, and other allowances — inflating the salary but then using a wrong formula — or using gross salary which is wrong), (b) using 15/30 instead of 15/26 (the employer uses 15/30 for covered employees — reducing the gratuity by ~13%), © not rounding the service period (6 years 8 months is counted as 6 years — not 7 years — reducing the gratuity), (d) capping the gratuity at Rs 10 lakhs (the old limit — the current limit is Rs 20 lakhs), (e) not including the notice period (the employer excludes the notice period from the service period — but the notice period is part of the service), (f) calculating from the date of joining the current company (not including the service with the previous employer — if the company was acquired or merged).
4. Step 4: How to verify. (a) calculate the gratuity yourself (use the formula: (Basic + DA) x 15/26 x years of service), (b) compare with the employer's calculation (request the employer to provide the gratuity calculation sheet — with the salary, service period, and formula used), © check the tax treatment (gratuity up to Rs 20 lakhs is tax-free — if the employer has deducted TDS on the excess — it is wrong), (d) for government employees: check the gratuity rules (government employees have different rules — the gratuity is calculated on the last pay drawn, and the limit is Rs 20 lakhs).
5. Step 5: Example calculation. (a) Basic + DA = Rs 50,000, Service = 10 years 6 months (rounded to 11 years), (b) Correct gratuity = 50,000 x 15/26 x 11 = Rs 3,17,308, © Wrong calculation (15/30): 50,000 x 15/30 x 11 = Rs 2,75,000 (difference: Rs 42,308), (d) Wrong calculation (not rounded): 50,000 x 15/26 x 10 = Rs 2,88,462 (difference: Rs 28,846), (e) Wrong calculation (gross salary, 15/30, not rounded): if gross = 70,000, 70,000 x 15/30 x 10 = Rs 3,50,000 (this looks higher — but is legally wrong and can be recovered later).
6. Step 6: File RTI. File RTI with the employer (if government/PSU) asking for: (a) the gratuity calculation sheet for employee [name], employee ID [number] (including: (i) last drawn Basic + DA, (ii) date of joining, (iii) date of exit, (iv) total service period, (v) formula used, (vi) gratuity amount paid), (b) the gratuity policy of the organisation (the formula, the cap, and the tax treatment — as per the organisation's rules), © whether the notice period was included in the service period (if not: the reason), (d) the gratuity limit applicable (Rs 10 lakhs or Rs 20 lakhs — and the date from which the higher limit was applied).
7. Step 7: How to claim. (a) send a written demand to the employer (with the correct calculation — citing the Payment of Gratuity Act 1972 and the formula), (b) file a complaint with the Labour Commissioner (the Commissioner can order the employer to pay the correct gratuity — with interest), © file a claim with the Controlling Authority under the Payment of Gratuity Act (the Authority can issue a certificate for the recovery of gratuity — which is enforceable as a land revenue demand), (d) file a civil suit (the court can order the employer to pay the correct gratuity — with interest and costs), (e) interest: the employer is liable to pay interest on the delayed gratuity (typically 8-12% per annum — as ordered by the Authority or the court).

See Gratuity Calculation and Find PIO.