Final answer:
An employee with 5 years and 6 months of service is eligible for gratuity as per the Payment of Gratuity Act 1972, and their service duration will be rounded off to 6 years for the purpose of gratuity calculation.
Step-by-step explanation:
Understanding Gratuity Calculation
When considering the Payment of Gratuity Act 1972, it's important to note that the Act covers the payment of gratuity to employees engaged in various establishments, and it applies to those who have completed at least five years of service, except in the event of death or disablement.
As per the Act, the gratuity amount is calculated based on the last drawn salary and the number of years of service. The formula given in the Act is Gratuity = (Last drawn salary × 15/26 × number of completed years of service). Here, the last drawn salary includes basic salary plus dearness allowance.
Since the employee in question has completed 5 years and 6 months of service, as per the Act, the tenure of service is rounded off to the nearest full year. Therefore, 6 months and above is considered as one full year for the purpose of this calculation. Thus, for 5 years and 6 months of service, the calculation would be for 6 years.
It is important to note that the 'Last drawn salary' in the formula refers to the average of the salary drawn in the last 10 months of the employee's tenure.
Example Calculation
If an employee with a last drawn salary of ₹20,000 (basic + dearness allowance) has completed 5 years and 6 months of service, the gratuity would be calculated as follows:
Gratuity = (₹20,000 × 15/26 × 6) = ₹69230.77 (rounded off to nearest rupee)