What is gratuity?

Gratuity is a monetary benefit given by the employer to his employee at the time of retirement.

It is a defined benefit plan where no contributions are made by the employee.

Prior to 1972, there was no law where it was mandatory for the employer to pay employees gratuity at the time of retirement. In 1972, the government of India enacted the Payment of Gratuity Act which made it mandatory for employers to pay their employees gratuity at the time of quitting, provided certain conditions were met.

An organisation will come under the purview of the Act if it has 10 or more employees on any single day in the preceding 12 months. The Payment of Gratuity Act follows the rule of 'Once Covered, Always Covered'. This means that once an organisation comes under the Act, it will always remain covered even if the number of employees falls below 10.

Even if the organisation has less than 10 employees, the law does not restrict the employer from paying gratuity to his employees.

An employee's eligibility to receive gratuity starts only if he has worked in an organisation for at least five years. Therefore, if you decide to leave your organisation after working there for five years, you are eligible to receive the gratuity.

Also Read: How to calculate Gratuity?