What Is Gratuity in Salary? Step-by-Step Guide for 2025
Gratuity is a one-time payment given by an employer to an employee as a thank-you for long-term service usually after completing at least five years with the same company. It’s not part of your monthly salary, but a legal benefit in countries like India and the UAE.
Think of it as a farewell reward for your loyalty and contribution. It’s paid when you resign, retire, or are let go (except for misconduct).
This guide explains what gratuity means, who’s eligible, how it’s calculated, and how to claim it in 2025. You’ll also learn about tax rules and country-specific laws. By the end, you’ll clearly understand your rights and how to make the most of this benefit—whether you’re planning ahead or approaching your final working days
What Is Gratuity in Salary?
Gratuity is a lump sum amount paid by an employer to an employee as a reward for completing a minimum number of years in service.
It is usually given at the time of:
- Resignation
- Retirement
- Termination (except for disciplinary reasons)
- Death or disability (in which case the minimum service rule may not apply)
It acts as financial support and a gesture of appreciation. Unlike a bonus or incentive, gratuity is based strictly on your tenure and last drawn salary.
Who Is Eligible for Gratuity?
To be eligible for gratuity, an employee must complete at least five years of continuous service with the same employer.
Here are the basic rules:
- Must be a full-time employee (not a freelancer or intern).
- Must have worked continuously for 5 years or more.
- Payment may still apply in cases of death or permanent disability, even if five years aren’t completed.
Example: If you worked for 6 years at a company and decide to resign, you are eligible to receive gratuity.
How Is Gratuity Calculated in 2025?
Gratuity is calculated based on your last drawn basic salary and the number of completed years of service.
The most common formula is:
Gratuity = (15 × Last drawn basic salary × Years of service) ÷ 26
- 15: Number of days salary for each year
- 26: Average number of working days in a month
Example:
If your last basic salary was $1,000 and you worked for 6 years:
Gratuity = (15 × 1000 × 6) ÷ 26 = $3,461.54
If your company follows a different payment structure (e.g., monthly-rated vs. daily-rated employees), the formula may slightly vary.
Some employers may offer more generous gratuity terms under their internal policies but never less than the legal minimum if applicable in your country.
If you work in the UAE and want to instantly check your gratuity amount, try our Gratuity Calculator UAE. Just enter your basic salary and years of service to see your estimated payout—no math required.
For a full breakdown of the rules, steps, and eligibility, read our detailed guide: UAE Gratuity Calculation Formula and Eligibility Explained.
These resources can help you calculate your benefit confidently—without digging through laws or spreadsheets.
When Is Gratuity Paid?
Gratuity is usually paid within 30 days of an employee’s exit from the company.
In most places, the employer must process and disburse gratuity after:
- A formal resignation or retirement
- Final settlement of dues
- Submission of any required forms (like a gratuity claim application)
If gratuity is delayed, interest may be applicable based on local labor laws.
Is Gratuity Taxable in 2025?
Gratuity may be partially or fully tax-free depending on your country and whether your employer is a private or government entity.
Typically:
- Government employees often receive full tax exemption.
- Private-sector employees may get tax exemption up to a certain limit, beyond which tax applies.
For example:
If the tax-free gratuity limit is $25,000 and your gratuity is $30,000, only $5,000 is taxable.
Make sure to consult a certified tax advisor or refer to updated local tax rules to understand the exact exemptions applicable in 2025.
How to Claim Gratuity Step-by-Step
To claim gratuity, follow these simple steps:
- Submit a written application to your employer within 30 days of your exit.
- Include necessary documents, such as your relieving letter, ID proof, and bank details.
- Wait for approval and processing, which usually takes a few weeks.
- Receive the gratuity amount directly in your registered bank account.
In some countries, you may also use online labor portals or HR systems to apply for gratuity.
If your employer delays payment, here’s the proven process to follow for late gratuity in the UAE. It walks you through the official complaint steps.
Gratuity for Contract or Temporary Workers
Contract and temporary workers may qualify for gratuity if they meet the same eligibility conditions.
If the contract is long-term and the person works continuously for 5+ years, they may legally be treated as full-time workers for gratuity purposes—depending on your country’s laws.
It’s best to keep employment records, offer letters, and salary slips as proof of continuous service.
Does Gratuity Apply If You Switch Jobs?
If you leave before completing 5 years, you usually don’t get gratuity.
But if you work for 5 years or more with one employer and then switch jobs, you’re entitled to gratuity from that first employer.
Each job is treated separately for gratuity. The clock resets with each new employer, unless you’re transferred within the same group or organization under unified HR policies.
Common Misunderstandings About Gratuity
Here are a few common misconceptions:
- “I’ll get gratuity no matter how long I work.”
No—you need at least 5 years in most cases. - “It’s a bonus I can negotiate.”
No—it’s based on a legal formula and not negotiable. - “It’s part of my salary package.”
No—gratuity is separate from your monthly or annual salary.
Knowing the facts helps you plan better and avoid wrong assumptions about your end-of-service benefits.
Conclusion
Gratuity is a legal end-of-service benefit that rewards employees for loyalty and long-term commitment. It is not a bonus or part of your regular salary but a separate lump sum paid when you leave a company after serving for five years or more.
In 2025, understanding gratuity is important for anyone planning a career shift, retirement, or reviewing financial benefits. It’s calculated using a simple formula based on your last drawn basic salary and total years of service.
Whether you’re in the public or private sector, knowing your gratuity rights can help you make informed decisions about your future. If you meet the eligibility rules, make sure to claim it properly and track any tax deductions.
Keep your employment records safe, stay aware of the rules, and don’t leave this benefit unclaimed—it’s your right, earned with time and dedication.
