HR glossary
What is gratuity?
Gratuity is a lump-sum payment an employer makes to an employee for long service, usually when they leave or retire. It is 15/26 of the last drawn monthly basic + DA for every year of service. Regular employees qualify after 5 years; fixed-term employees after 1 year under the Code on Social Security, in force from 21 November 2025.
Key rules (2026)
- Formula: 15/26 x last monthly basic + DA x years of service; a final part-year over six months counts as a full year
- Eligibility: 5 years (regular), 1 year (fixed-term), no minimum on death or disablement
- Wages: at least 50% of total pay under the Labour Codes
- Maximum: ₹20 lakh; also the tax-free limit for private-sector employees across a working life
- Companies with fewer than 10 employees are not covered by the law - payment follows company policy (often 15/30)
Example
- Basic + DA ₹50,000, service 7 years 8 months -> counted as 8 years
- 50,000 x 15/26 x 8 = ₹2,30,769
FAQ