What is gratuity?

Gratuity is a reward for employee loyalty. If an employee stays on in a company for over five years, he is entitled to get gratuity when he retires, resigns or is retrenched. The monetary reward to be paid by the company in recognition of the employee's years of service in the organisation is mandated by the Payment of Gratuity Act, 1972.

Most establishments employing 10 or more workers come under the Act. Roughly, the employee gets half a month’s Basic and Dearness Allowance (DA) for every completed year of service as gratuity.

Are you eligible for gratuity?

If an employee serves more than six months in the last year of employment, it is considered as a full year of service. There are exceptions and legal rulings that relax the five-year continuous service rule. The rule is waived if an employee dies or is disabled. Also, the Madras High Court in the Mettur Beardsell case ruled that if an employee completes four years and 240 days in service, he will be eligible for gratuity.

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