What is Gratuity?
Short answer
Gratuity is a lump sum paid when an employee leaves after long service. It equals last drawn monthly wages × 15 ÷ 26 × completed years of service, up to ₹20 lakh.
Rules
- It is normally payable after five years of continuous service. Under the labour codes, a fixed-term employee is eligible after one year.
- A part of a year counts as a full year only if it is more than six months.
- If the establishment is not covered by the Act, the divisor is 30 instead of 26.
- Wages for gratuity are basic pay plus dearness allowance; under the labour codes, statutory wages are at least 50% of total pay.
Example
Last drawn wages of ₹52,000 and 10 years of service give ₹52,000 × 15 ÷ 26 × 10 = ₹3,00,000.
In AdviHR
AdviHR calculates gratuity in the final settlement and in a free calculator, with the labour-code wage rule and a fixed-term option.
Frequently asked questions
How is gratuity calculated?
Last drawn wages × 15 ÷ 26 × completed years of service.
What is the maximum gratuity?
₹20 lakh.
Related terms
How sure are we? These figures use the same rules AdviHR payroll applies. We publish what has been checked against an official source and what has not, on the statutory accuracy page.
General information, not legal or tax advice. Confirm against the official notification and your adviser.