Gratuity Formula Under Payment of Gratuity Act 1972
Who is Eligible for Gratuity?
Any employee who has completed 5 years of continuous service is eligible for gratuity on: resignation, retirement, death (no 5-year requirement), disablement, or retrenchment. The 5-year rule is relaxed to 4 years 8 months for covered organisations under some High Court rulings (Madras HC: 240 days per year in a 6-day week organisation).
FAQs
Does gratuity increase with each salary hike?
Gratuity is calculated on the LAST drawn Basic + DA at the time of leaving. So yes, each salary hike throughout your career increases the final gratuity payout since it's based on the final salary x total years. This is why gratuity from long-tenured employees at senior positions can be substantial.
Is gratuity compulsory or voluntary?
For organisations covered under the Payment of Gratuity Act (10+ employees at any point), gratuity is legally mandated - the employer cannot withhold it (except in case of termination for proven misconduct causing damage). For non-covered organisations, payment is voluntary/contractual. Many companies offer gratuity voluntarily as part of their CTC structure regardless of size.
