Gratuity Rules 2025 : The recent changes in the gratuity rules for employees will directly affect everyone working in an organization. Now, the gratuity amount for those completing 5 and 10 years of service will be determined according to the new gratuity rules. Generally, when an employee completes 5 years of continuous service in a company, they become eligible to receive gratuity. Therefore, the gratuity amount holds great importance for every employee. Let’s understand how the gratuity calculation will now be done.
When is Gratuity Given?
There are specific rules regarding when gratuity is paid. The gratuity amount (what is gratuity) is given by the company as a reward for the employee’s continuous and good service record.
This payment is made by the employer. The gratuity amount is not given during the period of employment but is paid either after resignation or upon retirement. Employees who have completed 7 or 10 years of service are also eligible for gratuity, depending on the organization’s policy and rules under the Gratuity Act.
How Gratuity is Calculated
The gratuity calculation primarily depends on the employee’s last drawn salary. When an employee resigns or retires, the average salary of the last 10 months is considered as the final salary for gratuity purposes.
The total years of service are multiplied by the final salary, and then this result is multiplied by 15/26 to arrive at the gratuity amount.
Formula:
Gratuity = (Last Drawn Salary × Years of Service × 15) / 26
Example: Gratuity After 5 Years of Service
If an employee leaves a company after working for 5 years and their last drawn salary is ₹35,000, then the gratuity amount will be:
35,000 × 5 × 15 / 26 = ₹100,961
Example: Gratuity After 10 Years of Service
If an employee works for 10 years and resigns or retires with a last drawn salary of ₹75,000, the gratuity amount will be:
75,000 × 10 × 15 / 26 = ₹432,692
Similarly, gratuity can be calculated for any other duration of employment using the same formula.
Only 26 Working Days Considered for Gratuity Calculation
While calculating gratuity, only 26 working days in a month are considered, excluding the 4 weekly holidays (Sundays). Hence, gratuity calculations are based on 26 working days and not 30.
Who is Not Eligible for Gratuity?
An employee who has worked for 4 years and 5 months in a company is not eligible for gratuity. However, if the employee has completed 4 years and 7 months, then it is considered as 5 years, making them eligible for gratuity.
In other words, if the service period exceeds 6 months, it is counted as a full year for gratuity purposes.
When Can a Company Withhold Gratuity?
Companies have the right to withhold gratuity under special circumstances. However, this must be backed by valid evidence, and a show-cause notice must first be issued to the employee.
If the employee has caused significant damage to the company or has been involved in misconduct resulting in financial loss, the employer may withhold the gratuity amount.
Gratuity Act 1972
Under the Payment of Gratuity Act, 1972, every organization having at least 10 or more employees is required to pay gratuity to its employees.
If a company is not registered under the Gratuity Act, then gratuity is calculated differently — the amount is equivalent to half a month’s salary for each completed year of service, and in such cases, 30 days are considered as the working days in a month instead of 26.
Summary
Gratuity is a vital part of an employee’s retirement benefits. It not only rewards long-term service but also ensures financial support after leaving the organization. With the new gratuity rules, the calculation and eligibility norms have become clearer, ensuring fair benefits for employees completing 5, 10, or more years of service.
