What is gratuity?
Gratuity is a lump-sum payment an employer owes an employee for long service, payable when the employment ends — by resignation, retirement or termination. Eligibility begins at five years of continuous service with the same employer, a condition waived in cases of death or disablement. The amount follows a statutory formula: last drawn basic pay plus dearness allowance × 15/26 × completed years of service, with service beyond six months in the final year rounding up to a full year. The law caps the statutory amount at ₹20 lakh for private-sector employees, and payment is due within thirty days of it becoming payable — normally as part of the full and final settlement.
What the formula means in practice
Fifteen days of wages for every year served, with a month counted as 26 working days. Because it computes on the last drawn wage, every year of service is revalued at your final salary — long tenure at a growing salary compounds meaningfully. It also computes on basic+DA, not gross: estimating on gross is the most common way people overestimate their entitlement.
What employers do about it before anyone exits
Gratuity accrues as a liability from early in each employee's tenure, and auditors expect it provisioned annually, which is why payroll systems report the accruing amount from live tenure and wages. Some employers fund it through a trust or insurer; either way, the exit-day cheque should be a computation, not a surprise.
Quick example: ₹30,000 last drawn basic+DA after 7 years 8 months: the months round service to 8 years, so gratuity = 30,000 × 15⁄26 × 8 = ₹1,38,462.
Do I lose gratuity if I resign?
No — resignation after five years of continuous service pays exactly the same formula as retirement or termination. What forfeits gratuity is narrow and procedural (termination for specified serious misconduct), and below five years the entitlement simply hasn't vested, except in death or disablement cases.
Go deeper: Gratuity calculation guide · Gratuity calculator · FnF settlement
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