Gratuity is a lump sum benefit paid by your employer when you leave a job, but a lot of employees underestimate what they're eligible for — or don't realise they're eligible at all — because it's rarely discussed until the exit process actually begins.
Under the Payment of Gratuity Act, most employees become eligible after 5 years of continuous service with the same employer, calculated as 15 days of your last drawn basic salary plus dearness allowance for every completed year of service. This means even a modest basic salary, over a long tenure, can add up to a meaningful amount — often more than people expect when they first calculate it.
A common misconception is that gratuity is somehow part of your CTC that you're already 'getting' each month — it isn't. It's typically an employer liability funded separately (sometimes through a group gratuity insurance policy) and paid out as a lump sum only at the time of exit, retirement, or in cases of death or disability, regardless of the 5-year rule.
If you're approaching the 5-year mark at a job and considering whether to leave slightly before or after that milestone, it's worth running the numbers first — the Gratuity calculator on this site shows exactly what crossing that threshold is worth in your specific case.
Frequently asked questions
What is gratuity?
Gratuity is a lumpsum benefit paid by an employer to an employee as a token of appreciation for continuous service, typically paid out on retirement, resignation after a minimum qualifying period, or in the unfortunate event of the employee's death or disability.
Who is eligible for gratuity?
Under the Payment of Gratuity Act, an employee is generally eligible after completing at least 5 years of continuous service with the same employer, though this minimum period doesn't apply in cases of death or disablement, where gratuity is paid regardless of tenure.
What is the formula for calculating gratuity under the Act?
For employees covered under the Payment of Gratuity Act, gratuity is calculated as (Last drawn Basic + DA) × 15 × number of years of service, divided by 26 — the 26 representing the standard number of working days in a month for this calculation.