Gratuity is a lump sum amount given by a company to an employee as a reward for their service. It is provided under the Payment of Gratuity Act, 1972.
Usually, an employee becomes eligible for gratuity after five years of continuous service in the same company. Experience from different companies cannot be combined.
This rule applies only to organizations that have at least 10 employees.
Eligibility also depends on your office working days:
If your company follows a 5-day work week, you become eligible after 4 years and 190 days.
If it follows a 6-day work week, eligibility is after 4 years and 240 days.
Exceptions: When the 5-Year Rule Does Not Apply
The five-year condition is waived in certain cases. If an employee dies during service or becomes permanently disabled due to a major illness or accident, gratuity must be paid immediately.
In such situations, the amount is given to the employee, their nominee, or legal heir.
This rule ensures that families do not face financial difficulties during sudden hardships and that the employee’s rights are protected.
New Rules: Gratuity After Just 1 Year for Contract Workers
A major change under India’s Code on Social Security 2020 will start on November 21, 20250
. After this date, fixed-term or contract employees will become eligible for gratuity after just one year of continuous service.
This is a big benefit for contract workers who stay in the same company for long periods without getting permanent status.
In addition, journalists get an extra benefit. Under the Working Journalists Act, 1955, they are entitled to gratuity after three years of service.
How the New 50% Salary Rule Can Increase Your Gratuity
Another important rule in the Social Security Code states that basic salary + DA (Dearness Allowance) must make up at least 50% of the total CTC. Companies must structure salaries accordingly.
This can increase gratuity amounts because gratuity is calculated based on basic salary.
The formula is:
(Last Basic Pay × 15 / 26) × Completed Years of Service
So, the higher the basic pay and the longer the service, the higher the gratuity you will receive.
