Gratuity

Gratuity rewards long service. When an employee leaves by resignation, retirement or termination after the qualifying period, or dies or is disabled, the employer pays a lump sum based on the last wages and the years of service.

The law behind it

The Payment of Gratuity Act, 1972 has been replaced by Chapter V of the Code on Social Security, 2020, which the Central government brought into force with the other labour codes on 21 November 2025. Under Section 53 of the Code, gratuity is payable after at least five years of continuous service, except on death or disablement, where the five-year condition does not apply. A fixed term employee becomes entitled after one year of service, on a proportionate basis.

How it is calculated

For each completed year of service, or part of a year over six months, the employee gets 15 days' wages, based on the wages last drawn. The total is capped at a ceiling the Central government notifies. Under the codes, 'wages' covers basic pay, dearness allowance and retaining allowance, and if excluded allowances exceed half of total pay, the excess is added back to wages.

• Apply to the employer within the time the rules set, giving the dates of service.
• The employer must pay within 30 days of it becoming payable, failing which interest is due.
• Disputes go to the authority appointed under the Code.

Draft a gratuity application or a full and final settlement letter, and read about notice periods on termination.