What is gratuity?
Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for long and continuous service. It is governed by the Payment of Gratuity Act, 1972 — one of India’s most important labour laws. The Act mandates gratuity for employees who have completed at least five years of continuous service in an organisation that employs ten or more people.
Gratuity is payable at the time of retirement, resignation, or in cases of death or disablement. Unlike a provident fund, gratuity comes entirely from the employer — no deduction is made from the employee’s salary. It is effectively a reward for loyalty and is treated separately from other retirement benefits.
How this gratuity calculator helps you
Calculating your gratuity payout under the Payment of Gratuity Act, 1972. This calculator helps in the following ways:
Gratuity eligibility criteria
Not every employee automatically qualifies for gratuity. Here are the key conditions you must meet under the Act:
5 years of continuous service
The primary criteria. You must have worked with the same employer for 5 continuous years. Partial years beyond 6 months count as a full year.
Organisation with 10+ employees
The Act applies to organizations with 10 or more employees on any day of the preceding twelve months.
Exception: death or disablement
If service is terminated due to death or permanent disablement, the 5-year requirement is waived completely.
Contractual and temporary staff
Temporary, contractual, and permanent employees are all covered under the Act if eligibility conditions are met.
How to use this gratuity calculator
The calculator requires two inputs:
How gratuity is calculated
Employers in India calculate gratuity using the statutory formula:
Gratuity = (15 × Last Drawn Salary × Years of Service) / 26
Where:
15 days of salary per completed year
Basic Pay + Dearness Allowance (DA)
Statutory average working days in a month
The denominator 26 represents monthly working days, which excludes the four Sundays. The 15 in the numerator represents 15 days of salary, meaning employees receive approximately half a month's basic salary for every year of completed service.