Gratuity is a lump-sum payment made to employees as a form of end-of-service benefit, typically after completing a minimum period of continuous employment. The calculation depends on the employee’s last drawn salary and the length of service, and is governed by local labor laws, particularly in countries like India, the UAE, and other parts of Asia and the Middle East.
What is the standard formula for gratuity?
In many countries (e.g., India), the formula is:
Gratuity = (Last drawn basic salary × 15 × number of years worked) / 26
- 15 represents 15 days of salary for each year of service
- 26 is the number of working days in a month
- The total years of service are usually rounded down to the nearest full year
Local variations apply. For example:
- Some countries mandate gratuity only after 5 years of service
- Caps may exist on the total gratuity payable
- Additional components like dearness allowance or bonuses may be included
Where does gratuity apply?
Gratuity is most common in countries with formal labor protection laws. It’s typically mandatory for full-time employees but may not apply to contractors or temporary staff.
Who is responsible for paying gratuity?
The employer is responsible for calculating and paying gratuity as part of the offboarding or termination process.
How Papaya Global helps
Papaya Global supports compliant offboarding processes in over 160 countries, including final payroll processing and statutory payments such as end-of-employment benefits, in accordance with local labor laws.
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