The Payment of Gratuity Act, 1972 is the law that turns gratuity from an employer’s goodwill payment into a statutory right. It fixes who is entitled, after how long, how the amount is calculated, when it must be paid, and the narrow grounds on which it can be withheld.

Who it covers

The Act applies to every factory, mine, oilfield, plantation, port and railway company, and to shops and establishments employing 10 or more persons on any day in the preceding 12 months. Once it applies, it continues to apply even if the headcount later drops below 10. In practice this covers virtually all salaried employment in India.

Core rules

• Eligibility: five years of continuous service, waived on death or disablement.
• Formula: for covered establishments, 15 days’ last drawn basic plus DA for each completed year, computed as (15 x wages x years) / 26. Over six months in the final year rounds up.
• Ceiling: the maximum statutory gratuity is Rs 20 lakh.
• Nomination: made on Form F, to be updated on marriage or family change.
• Timing: payable within 30 days of becoming due; delay carries simple interest.
• Forfeiture: under Section 4(6), wholly or partly, for wilful damage or loss to employer property, or riotous conduct or an offence of moral turpitude in the course of employment, after due process.

Frequently asked questions

Does the Act allow gratuity before five years?

Only on death or disablement. A widely cited high court ruling has treated 4 years and 240 days as sufficient, but this is not uniformly settled, so employers should confirm their own position.

What is the employer’s obligation on an employee’s exit?

To determine the amount and pay it within 30 days, whether or not the employee applies, and to give notice of the amount.

Are contract and fixed-term employees covered?

Yes, if they meet the continuous-service test. Fixed-term employees are entitled to pro-rata gratuity under later amendments even without five years.

Calculate an entitlement with the Gratuity Calculator, and see it within exit dues via the Full and Final Settlement Calculator.