Gratuity After 5 Years — What a Permanent Employee Is Actually Owed

Why 5 years is the milestone that matters

5 years of continuous service is the threshold at which a PERMANENT employee becomes eligible for gratuity under the Payment of Gratuity Act (as continued under the Code on Social Security) — an employee who leaves at 4 years and 11 months gets nothing, while one who crosses 5 years and 1 day is entitled to the full formula amount for those 5 years. This sharp cliff-edge is exactly why the rounding rule (more than 6 months in a partial final year rounds up) matters so much in practice — it can be the difference between qualifying and not.

This 5-year threshold applies specifically to PERMANENT employees. Fixed-term and contract employees qualify after just 1 year under the Code on Social Security — a completely different threshold, not a reduced version of the 5-year rule.

What the payout actually depends on beyond just '5 years'

Once eligible, the payout amount depends on: whether the establishment is covered under the Act (15/26) or not (15/30); the exact wage figure at the time of leaving, computed on the expanded statutory wage base rather than basic pay alone; and whether any partial service beyond the 5-year mark rounds up to add an extra year to the calculation. Two employees who both 'completed 5 years' can have meaningfully different payouts if their wage structures or exact leaving dates differ.