Gratuity is a significant employee benefit that provides financial security to employees upon their retirement or resignation. In India, the Payment of Gratuity Act, 1972, governs the payment of gratuity to employees in various establishments. The Act ensures that employees receive a gratuity amount as a token of appreciation for their long and meritorious service.

What is Gratuity?

Gratuity is a lump sum payment made by an employer to an employee as a token of gratitude for the services rendered during the tenure of employment. The amount is usually based on the employee’s salary and the number of years served in the organization.

Applicability of the Gratuity Act:

The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port, railway company, shop, or any other establishment where ten or more employees are employed, or were employed, on any day of the preceding twelve months.

Conditions for Eligibility

To be eligible for gratuity, an employee must meet the following conditions:

1. The employee should have completed a continuous service of at least five years with the employer.

2. Gratuity is payable on the termination of employment due to superannuation, retirement, resignation, death, or disablement.

Calculation of Gratuity

The gratuity amount is calculated based on the formula:

Gratuity= Last Drawn Salary × Number of Completed Years of Service×15​

Here, the last drawn salary includes basic salary and dearness allowance.

Remedies for Non-Payment of Gratuity

In the unfortunate event of non-payment of gratuity, employees have legal remedies to ensure they receive their entitled benefits. The Payment of Gratuity Act provides for penalties and legal actions against employers who fail to comply with the gratuity payment obligations.

1.Complaint to the Controlling Authority

   – The employee or their nominee can file a written complaint to the Controlling Authority appointed under the Act. The complaint should be filed within 90 days from the date the gratuity became payable.

   – The Controlling Authority investigates the matter and issues directions for the payment of gratuity.

2. Appeal to the Appellate Authority:

   – If the employee is not satisfied with the decision of the Controlling Authority, they can appeal to the Appellate Authority within 60 days from the date of the decision.

3. Legal Action

   – In extreme cases, employees may take legal action against the employer for the recovery of gratuity. The Act empowers the appropriate government to recover the gratuity amount as an arrear of land revenue.

4. Penalties

   – Employers who fail to comply with the provisions of the Gratuity Act may be liable to pay a penalty, which may extend up to ₹10,000.


The Payment of Gratuity Act in India ensures that employees are acknowledged and rewarded for their dedicated service to an organization. Employees should be aware of their rights regarding gratuity and the legal remedies available in case of non-payment. Employers, on the other hand, should adhere to the statutory provisions and promptly fulfill their obligations to avoid legal repercussions. Overall, the Gratuity Act plays a crucial role in fostering a sense of financial security and appreciation for employees in the Indian workforce.


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