Gratuity

Gratuity is a sum an employer pays an employee on leaving, in recognition of service. It was governed by the Payment of Gratuity Act, 1972, under which it generally required five years of continuous service, and is now governed by the Code on Social Security, 2020. It is calculated at fifteen days' wages for each completed year of service, which is worked as 15/26 of the monthly wage.

Two changes move the figure. A fixed-term employee is now eligible after one year rather than five. And the Code on Wages, 2019 redefines wages so that excluded allowances cannot exceed half of total remuneration, which for a salary built on low basic pay and high allowances raises the base on which gratuity is calculated. A company still provisioning on a five-year assumption understates the liability. The position is stated as at 9 September 2026.