Higher gratuity with 50% salary rule – Do you need full 5 years of service for gratuity? Exceptions every employee should know | The Economic Times

Clipped from: https://economictimes.indiatimes.com/wealth/legal/will/do-you-need-full-5-years-for-gratuity-exceptions-every-employee-should-know/higher-gratuity-with-50-salary-rule/slideshow/125862055.cms

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What is gratuity and who is eligible?

Gratuity is a one-time payment for dedicated service, governed by the Payment of Gratuity Act, 1972 and is usually paid after five continuous years. But the five-year rule isn’t absolute, read on to find out which situations or nature of work may qualify you earlier.

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The standard 5-year eligibility rule

For permanent employees resigning or retiring voluntarily, the five-year minimum is mandatory. It means uninterrupted service with one employer, not cumulative years across companies. The company must have at least 10 employees for the Gratuity Act to apply.
However, if your company follows a 5-day workweek, you qualify after 4 years and 190 days of service. For 6-day workweeks, it’s 4 years and 240 days.

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Exceptions: Death and disability make gratuity payable immediately

If an employee passes away during service or becomes permanently disabled due to an accident or critical illness, gratuity becomes immediately payable to the employee, nominee or legal heir depending on the situation and doesn’t need a five-year wait.
This ensures unexpected hardships don’t cost you your rightful benefits.

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Fixed-term employees now eligible after just 1 year

Under India’s new Social Security Code 2020, effective November 21, 2025, fixed-term and contract employees qualify for gratuity after just one year of continuous service. The calculation formula remains the same, but the eligibility threshold is lesser.

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Journalists get gratuity after 3 years

Working journalists enjoy a unique exemption under the Working Journalists Act, 1955. Unlike other professionals, journalists can claim gratuity after completing just three years of continuous service instead of five.

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Higher gratuity with 50% salary rule

The Social Security Code 2020 mandates that basic pay plus dearness allowance must constitute at least 50% of your total CTC for gratuity calculations. Salary restructuring by companies to follow the mandate could mean higher gratuity payouts.
Gratuity is calculated as (Last drawn monthly wage × 15 / 26) × Completed years of service. The last drawn monthly wage includes basic salary plus dearness allowance