Payment of Gratuity Act 1972: Statutory Principles
Gratuity is a defined statutory benefit payable to an employee as a terminal retirement benefit in recognition of long-term continuous service. It is governed by the Payment of Gratuity Act, 1972 across establishments employing 10 or more individuals.
1. The 15/26 Working Day Formula
For organizations covered under the Act, a month is legally defined as 26 working days (excluding 4 statutory weekly offs). The gratuity calculation awards 15 days of last-drawn basic wage for every completed year of service:
2. The 7-Month Rounding Rule
Under Section 4(2), any fraction of service in excess of 6 months (i.e. 7 months and above) is rounded up to the next full year. For instance, a tenure of 5 years and 7 months is calculated as 6 full years.
3. Minimum 5-Year Eligibility & Exceptions
Statutory gratuity requires a minimum of 5 years of continuous service upon resignation or retirement. However, under Section 4(1) proviso, the 5-year requirement is waived in cases of death or total permanent disablement of the employee.