For calculation of gratuity, pension and commutation of pension or family pension payable to retired employees/officers of the bank pursuant to latest wage revision, the retired staff required to have the last drawn salary details such as Basic Salary, Special Pay (if any) PQP, FPP, stagnation increment (if any) and applicable DA at the time of your retirement. We have prepared a READY RECKONER designed to assist them by providing a ready-reckoner giving details of corresponding period relevant salary as per 11th BPS/8th Joint Note. In case you need the help of a ready-reckoner to fill in the data click ‘ready-reckoner for award staff’ or ‘ready- reckoner for Officer’ as the case may be. In case you have confusion over stagnation increment click ‘Stagnant increment’ which provides the details of stagnation increments for award staff as well as that of Officers.
Calculation of gratuity and Pension and commutation of Pension:
Here below, we are providing formulas for calculation of Gratuity, Pension, commutation of pension, total arrears receivables for officers as well as award staff with illustrations.
Gratuity:
Gratuity is paid to an employee on his/her superannuation/retirement from the service. The employees who have put in more than 5 years of continuous service (without interruption) in an organization are also eligible for the payment of gratuity. However, interruption in service due to sickness, accident, layoff, strike or lockout of the unit, are not considered as an interruption in service. Gratuity is also paid on the occasions of death of an employee/or disability of employees to work in the same organization, due to accident or disease even though 5 years of service is not completed.
Gratuity payment in Banks:
There are two types of gratuity payment systems in India viz. Gratuity paid under the Payment of Gratuity Act, 1972 and another category is gratuity paid to others who are not covered under the Payment of Gratuity Act, 1972. In the banks (except SBI), Gratuity is paid to employees and officers under the Gratuity Act, 1972 as well as under the provisions of Bipartite Settlement [for bank officers as per Officers Service Regulation (OSR)] whichever is higher. Hence for every retiring employee, Gratuity has to be calculated both under the Act and under BPS, and the higher of the two will be paid. The Gratuity is paid to employees and officers of SBI only under the Gratuity Act. 1. In terms of Section 4 (5) of the Payment of Gratuity Act, 1972, Gratuity under Gratuity Act or BPS provisions whichever is higher is payable.
For those employees who have retired from bank service after November 2017, Gratuity will be re-calculated both under the Act and as per 11th BPS, and arrears/difference if any will be paid to them.
(*Note: The maximum payment of Gratuity is restricted to a ceiling of Rs.20 lakh after an amendment to the act. (Earlier ceiling Rs.10 lakh changed to Rs.20 lakh with effect from 29.03.2018 vides Gazette notification [No. S-42012/02/2016-SS-II]
The major difference between the gratuities paid under Gratuity Act and to other systems under OSR or bipartite settlement is basically different in the method of calculation of Gratuity. The method of calculation of gratuity under both the system is as under
As per Gratuity Act1972
15 Days wage x No. of years of service (Max. Rs. 20 lacs)
Wage means Basic Pay, Spl. Pay, Spl. Allowance, PQP, Officiating Pay and DA on total, + Increment portion of FPP (No DA on FPP).
1 day = monthly wage/26 days.
- The calculation method of gratuity payable under the Payment of Gratuity Act, 1972 is as under (Formula 1):
(Last drawn Salary x 15 days x Number of years of service) divided by 26
Under Payment of Gratuity Act, 1972, the service in excess of six months is taken as a full year for calculation of gratuity.
Wage means Basic Pay, Spl. Pay, Spl. Allowance, PQP, Officiating Pay and DA on total, + Increment portion of FPP (No DA on FPP).
Example: If a person retires after 32 years 7months of continuous service, his gratuity is calculated as (Last drawn salary×15×33)÷26
2.The calculation method of gratuity payment for the employees not covered under the Act (Formula 2):
As per bipatite settlement/OSR
One month Pay for each completed year of service (Max. 15 months) plus half month Pay for each year beyond 30 years’ service ( No maximum limit)
Pay means Basic pay, Spl. Pay, Offg. Pay, PQP, increment portion of FPP. (In this case, the employee/officer shall pay income tax on the payment of gratuity amount exceeding Rs.20 lakhs)
Here, the number months exceeding six months, will not be considered as a full year.
Example: If a person retires after 30 years and 8 months of continuous service, his gratuity is calculated for 30 years of service. The calculation of gratuity payable under formula 2 is as under:
(*Average salary of preceding 10 months×30) ÷2
*Average monthly salary is to be computed on the basis of the average salary for 10 months immediately preceding the month (not the day) of retirement. The average salary includes basic salary plus the dearness allowance and other allowances like special pay, PQP, FPP, etc. eligible as per bipartite settlement between employees and establishment.
Calculation of gratuity both under Gratuity act and not covered under gratuity act:
Illustration 1: An officer of scale II retires on 30th October 2018 after completing 35 years and 9 months of service in the bank. Gratuity payable to him as per revised salary is calculated as under.
| As per gratuity payment under OSR (not covered under the gratuity act (Amount in Rupees) | As per section 4(5) of gratuity Act 1972 (Amount in Rupees) |
| Basic with 5 stagnation increments: 89330 | Basic with 5 stagnation increments : 89330 |
| PQP: 2550 (Passed CAIIB) | PQP: 2550 (Passed CAIIB) |
| FPP increment portion: 3306 | FPP : 3306 |
| Total of BASI+PQP+FPP= 89330+2550+3306=95186 | Total of BASIC+PQP=91880 Total+DA on 91880 at 4.41% =91880+4052=95932 |
| (95186×35)/2= 1665755 | Add: FPP: 3306=99238 |
| Gratuity* Calculation: (99238×15×36)÷26=20,61,096 | |
| Gratuity Payable under OSR: 16,65,755 | Gratuity Payable under the act :20 lakhs (maximum ceiling 20 lacs) |
(* The service in excess of six months is taken as a full year for calculation of gratuity i.e. 36 years). In this case payment of gratuity under gratuity act 1972 is beneficial to the officer. Bank has to make payment of Rs.20 lacs towards payment of gratuity.
Illustration 2: A Special Assistant retires on 30th September 2020 after completing 40 years and 1 month of service in the bank. Gratuity payable to him as per revised salary is calculated as under.
| As per gratuity payment BPS/OSR (not covered under the gratuity act (Amount in Rupees) | As per section 4(5) of gratuity Act 1972 (Amount in Rupees) |
| Basic with 9 stagnation increments: 65830 | Basic with 9 stagnation increments :65830 |
| Spl. Pay Spl assistant: 2920 | Spl. Pay Spl assistant: 2920 |
| PQP: 3045 | PQP: 3045 |
| FPP increment portion: 1990 | Total :71795 |
| Total : 73785 | Total+DA on 71795 at 20.79%% =71795+14926=86715 |
| (73785 ×20)= 1475700 | Add: FPP: 1990=88705 |
| Gratuity Calculation: (88705×15×40)÷26=2047038 | |
| Gratuity Payable: 14,75,700 | Gratuity Payable:20 lakhs (maximum ceiling 20 lacs) |
In this case payment of gratuity under gratuity act 1972 is beneficial to the employee. Bank has to make payment of Rs.20 lacs towards payment of gratuity.
Illustraion 3:
A Sub-Staff with Daftary special Pay retires on November 30th 2019 after completing 40 years and 3 months of service in the bank. Gratuity payable to him as per revised salary is calculated as under.
| As per gratuity payment BPS (not covered under the gratuity act (Amount in Rupees) | As per section 4(5) of gratuity Act 1972 (Amount in Rupees) |
| Basic with 9 stagnation increments: 37145 | Basic with 9 stagnation increments :37145 |
| Spl. Pay Daftary: 850 | Spl. Pay Daftry: 850 |
| FPP increment portion: 1000 | Total : 37995 |
| Total wage: 38995 | DA on Rs.37995 at the rate of 6.73%=6356 |
| Gratuity Payable:38995×20=779000 | FPP increment portion: 1000 |
| Total wages: 38845+6356+1000=46201 | |
| Gratuity Payable: 779000 | Gratuity Calculation: (46201×15×40)÷26=1066176 |
In this case payment under of gratuity under Gratuity, the act is beneficial to the employee. Bank has to make payment of Rs.BPS is 1066176 towards payment of gratuity.
Calculation of Pension and commutation of pension on revised basic:
An employee or officer retires from the bank with the benefit of superannuation pension, or voluntary retirement pension, or premature retirement pension, or compulsory retirement pension, or invalid pension or compassionate allowance shall be entitled to commute for a lump sum payment of a fraction not exceeding one-third of his pension. Also, the family of a deceased employee who is governed by sub-regulation (5) of regulation 3, of Pension Regulations, shall also be entitled to commute for a lump sum payment of fraction not exceeding one-third of the pension admissible to the employee. The commuted portion of the pension will be restored after the expiry of a period of fifteen years from the date of commutation. Commutation value expressed as the number of year’s purchases. It means if an employee retires on superannuation (completion of 60 years), the commutation value applicable to him/her will be as applicable to the next birthday i.e. applicable to the age of 61 years. We have taken the commutation factor in the below illustration as 9.81 assuming that an employee/officer retired on completion of 60 years of age. Employees /Officers who have retired before completing the age of 60 years may click ‘computation factor’ to assess their Commutation value expressed for their completed years of age.
Pension calculation (In case of illustration 1 above):
Basic salary: 89330, PQP: 2550, FPP:3306-Total : 95186
Basic Pension at 50% of Rs.95186= 47593
Family Pension is 60% of basic pension: Rs.28555
1/3 for commutation: Rs.15864 (Employees/Officers will have an option not to claim incremental commutation on revised basic.)
Commutation amount: 15864×9.81×12=1867510
Monthly Pension after commutation:2/3 of 47593= 31728
He is eligible to receive a Gratuity amount of Rs.20 lacs Pension commutation amount of Rs.1867510 and monthly pension of Rs.31728
Pension Calculation (In case of illustration 2 above):
Basic salary: 65830, Spl pay 2920, PQP 3045, FPP 1990-Total: 73785
Basic Pension at 50% of Rs.73785= 36892
Family Pension 60% of basic pension:Rs.22135
Commutation of Pension:
1/3 for commutation: Rs.12297 (Employees/Officers will have an option not to claim incremental commutation on revised basic.)
Commutation amount:12297×9.81×12=1447602
Monthly Pension:2/3 of 36892= 24595
DA on 36892 as of November 2020 (23.80%)=8780
Total Pension after commutation : 33375
He is eligible to receive a Gratuity amount of Rs.20 lacs Pension commutation amount of Rs.1447602, Monthly Pension of Rs.33375
Pension Calculation (In case of illustration 3 above):
Basic salary: 37145, Spl. pay : 850, PQP 3045, FPP 1000- Total: 38995
Basic Pension at 50% of 38995= 19497
Family Pension: 60% of basic pension:Rs.11698
Commutation of Pension:
1/3 for commutation: Rs 6499 (Employees/Officers will have an option not to claim incremental commutation on revised basic.)
Commutation amount:6499×9.81×12=765062
Monthly Pension:2/3 of 36892= 12998
DA on 19497 as of November 2020=4640
Total Pension after commutation : 16938
He is eligible to receive a Gratuity amount of Rs. 1066176, Pension commutation amount of Rs.765062 and Monthly Pension of Rs.16938
