Gratuity

It is a statutory obligation rather than a discretionary bonus. Under the Payment of Gratuity Act, 1972, an establishment with ten or more employees owes gratuity to anyone leaving after five completed years — on resignation, retirement, or death or disablement, where the five-year condition does not apply.

The calculation uses last drawn basic salary plus dearness allowance, multiplied by fifteen, multiplied by years of service, divided by twenty-six. The twenty-six represents working days in a month and the fifteen represents fifteen days' wages per year. Because it is computed on basic plus DA rather than on total CTC, the result is usually far smaller than employees expect from their overall package.

Two rules cause most of the disputes. Eligibility counts completed years, so four years and eleven months earns nothing at all. But once past five years, a part year of six months or more rounds up — seven years and seven months is paid as eight. People frequently assume the rounding rule also applies to eligibility. It does not.

For an employer, the practical consequence is that gratuity liability accrues quietly across the workforce and lands as a single payment at exit. Provisioning for it as part of CTC is common precisely so the cost is recognised as it is incurred rather than when someone resigns.