Gratuity is a reward given by companies to employees for their dedicated service. It is paid as a lump sum under the Payment of Gratuity Act, 1972.
Typically, employees receive gratuity after five years of continuous service in the same company. Work experience in multiple companies does not count. This rule applies only to organizations with at least 10 employees.
For offices with 5-day work weeks, you become eligible after 4 years and 190 days.
For offices with 6-day work weeks, eligibility is after 4 years and 240 days.
Exceptions to the Five-Year Rule
The five-year service condition does not apply in certain situations:
If an employee dies while in service.
If an employee becomes permanently disabled due to serious illness or accident.
In these cases, gratuity is paid immediately to the employee, their nominee, or legal heir. This ensures that families are financially protected in sudden hardship and that employees’ rights are secured.
New Changes for Gratuity Eligibility
Under India’s Code on Social Security 2020, effective November 21, 2025, there are major changes:
Fixed-term or contract employees can claim gratuity after just one year of continuous service, instead of waiting five years.
In the media industry, journalists get gratuity after three years of service under the Working Journalists Act, 1955, giving them an advantage over other professions.
How Your Gratuity Amount is Calculated
The Social Security Code also requires that your basic pay + Dearness Allowance (DA) should make up at least 50% of your total CTC. This may increase your gratuity, as it is calculated based on your basic pay.
Gratuity formula:
Gratuity=(Last Basic Pay×15/26)×Completed Years of Service\text{Gratuity} = (\text{Last Basic Pay} \times 15 / 26) \times \text{Completed Years of Service}
This means:
The longer you work and
The higher your basic salary,
…the higher your gratuity amount will be.