Gratuity in India - Meaning, Eligibility and Remedy

Gratuity In India- Meaning, Eligibility and Remedy

Gratuity refers to a legal value that employees are remunerated with if and when they have worked at that particular place for a continuous period of not less than 5 years. This is supposed to be an amount paid to the employee and is totally and completely based on the time he has worked for in that company. Gratuity amount is payable to an employee on termination of employment this can be either by resignation, death, retirement or termination.  The importance of gratuity is the security factor attached to it that an employee or his family gets in the terms of money. The complete onus of payment of gratuity lies on the employer, the increase in the amount of gratuity is directly proportional to the increase in salary of the employee.

Act and applicability

Payment of Gratuity Act, 1972 make available the arrangement for the payment of gratuity to employees working  in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The Payment of Gratuity Act is overseen by the Central Government in establishments under its jurisdiction, establishments having branches in more than one State, major ports, mines, oil fields and the railways and by the State governments and Union Territory administrations in all other cases.

Under the act, the employer can pay the gratuity incomes from his revenue or there can be a gratuity fund set up as a part of their financial planning.


The Payment of Gratuity Act, 1972 is applicable to the following:

  • Every factory, mine, oilfield, plantation, port and Railway Company;
  • Every shop or establishment within the meaning of any law in which ten or more persons are employed,  or were employed, on any day of the preceding twelve months.
  • Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.

If a company gets eligible and the Payment of Gratuity Act becomes applicable to it, the Act would remain applicable to that organization, even if the number of employees gets reduced than the minimum prescribed in the Act. The Act extends to whole of India but it does not extend to the State of Jammu and Kashmir so far as it relates to plantations or ports.


For the purpose of this Act, an employee is any person (does not include apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are expressed or implied and whether or not such person is employed in a managerial or administrative capacity, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

Any employee who has served an organization for not less than five years is entitled to gratuity on his retirement, resignation or on his death as well as in case of incapacitation.  It is important to note that the obligation of achievement of continuous five years of service shall not be considered essential where the termination of the employment an employee is based on death or impairment of that employee. Incapacitation in such a case would mean incapacitation which disables a worker for the work which he was capable of executing before his accident or disease that would result in such incapacitation.

In the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs. In case of female employees, family includes female employee, herself, her husband, her children, whether married or unmarried, her dependent parents and the dependent parents of her husband and the widow and children of her predeceased son, if any. In case of personal law allowing lawful adoption, to her adopted heir/heirs.

Remedy in Case the Employer Does Not Pay Gratuity

If the employer fails to pay the gratuity amount within the given time to the entitled employee or nominee, the aggrieved person can give an application to the Controlling Authority under the Payment of Gratuity Act within the region where the employer's establishment is located or where the employee was working at the time of cessation. The Authority will then issue a certificate for that amount to the Collector, who will recover that amount, along with the compounded interest  at rate as the Central Government may, by notification, lay down, from the date of expiry of the prescribed time.

Disclaimer:- This is only generic information on Indian Laws, which may be subject to change regard being had to legal amendments from time to time and should not be relied on for any legal action or inaction. Legal Nexus will not be liable for any damages or losses, direct or indirect, suffered or incurred by any user who chooses to proceed on the basis of reliance on the information provided herein.

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