Payment of Gratuity Act, 1972


The Payment of Gratuity Act, 1972 envisages to provide a retirement benefit to the workmen who have rendered long and meritorious services to the employer.

The Act applies to –

* every factory, mine, oilfield, plantation, port, railway company;

* every shop or establishment governed by the Shops and Establishments Act of that State in which 10 or more persons are employed, or were employed on any day of the preceding 12 months; and

* every other establishment wherein 10 or more persons are employed, or were employed on any day of preceding 12 months and which is so notified by the Central Government.

* The Central Government has made the Act applicable to all the educational institutions in the country having 10 or more employees, and to all registered trusts and societies employing 10 or more persons.

* The Act has been made applicable also to motor transport undertakings, clubs, Chambers of Commerce & Industry, local bodies and solicitors offices employing 10 or more persons.

* The shop or establishment to which this Act has become applicable shall continue to be governed by this Act, irrespective of the fact that the number of employees working therein has subsequently fallen below 10.

* This Act is not applicable to apprentices and persons holding a post under the Central or State Government who are governed by any other Act or by any other rule providing for payment of gratuity.


The appropriate government is empowered to exempt by notification any establishment, etc. where the employees of such establishment, etc. are in receipt of gratuity or pension benefits not less favorable than the benefits conferred under this Act. The appropriate government may also exempt any employee or class of employees, similarly.


Gratuity shall be payable to an employee on termination of his employment after he has rendered continuous service for not less than 5 years:

* on his super annuation,

* or on his retirement orresignation,

* or on his death or disablement due to accident or disease.

* The condition of completing 5 years’ service is not applicablein case of disablement or death of an employee. In case of death of the employee, gratuity is payable to the legal heirs or nominees of such employee.

Calculation of Gratuity

The gratuity shall be paid @ 15 days’ wages for every completed year of service, but the wages for a month will be calculated as if the month comprises of 26 days.The maximum gratuity payable to an employee is Rs.2,000,000.

For example, if an employee is drawing Rs. 10,400/- per month as his last drawn salary and either he resigns/retires or his services are terminated after working for 20 years, he will be entitled to receive gratuity of Rs.120,000 as under:-

10,400 (salary) x 15 (days) x 20 (years)/26 = Gratuity Amount Rs.120,000.

Continuous Service

1.  Service without interruptions or breaks is continuous service. But any absence from duty because of sickness, accident, leave, layoff or strike, lockout, stoppage of work for which the employee is not at fault will not be considered to be an interruption or break in service.

2. Employee shall be deemed to be in continuous service for one year if he/she has put in 240 days’ work in 12 calendar months preceding the date of calculation, or 190 days if the establishment works less than 6 days a week or the employee works below ground in a mine.

3. Employees in a seasonal establishment shall be deemed to be in a continuous service if they have worked for not less than 75 per cent of the required attendance.