The Payment of Gratuity is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments employing 10 or more persons. Even if the number of workers employed by an establishment reduces afterwards to less than 10, the said establishment would be liable to pay gratuity to the workers.


The eligibility criteria for receiving gratuity upon 

  • Retirement
  • Resignation/ Demise
  • Disablement due to an Accident or a Disease
  • Termination
  • Voluntary Retirement
  • Lay off due to retrenchment

completion of a continuous service of at least 5 years and these 5 years of continuous service include interruptions and hindrances in work of an employee because of strike, lockout, accident, leaves, layoff, absence from duty without leave, and termination of service not on the part of an employee.

However, this condition is not mandatory if the termination of the employee is caused by his or her death and he or she would be eligible to receive the gratuity in this case even if that employee has not completed 5 years of service.

For the calculation of the 5 years of service-

Establishments working underground or in mines: one year is counted for at least 190 working days and in the case of other establishments: one year is counted for at least 240 working days.


If an employee has worked for 4 years and 7/8 months, it would be counted as whole 5 years whereas if the employee has worked for 4 months and ½ months, it will be counted as 4 years.


The benefits provided under the Payment of Gratuity Act are as follows-

In lieu of every completed year of service, the eligible employee would receive a gratuity payment at the rate of 15 days’ wages according to the last drawn wage by the employee.

In the case of a piece-rated employee, the daily wages, the period of service would be computed on an average of the total wages received by the eligible employee for a period of three months just before the termination excluding the overtime wages.

In case of an employee employed in a seasonal establishment which doesn’t make possible the employment of a whole year, the employer of such an establishment is liable to pay gratuity to the eligible employee at the rate of 7 days’ wages for each and every season

Gratuity is fully paid by the employer and no part of the gratuity comes from an employee’s salary.