Gratuity Eligibility Rules — the Complete Checklist

The eligibility decision tree

Start with employment type: permanent employees need 5 years of continuous service; fixed-term and contract employees need just 1 year under the Code on Social Security. Then check for the death/disability exception — if applicable, the service-duration requirement is waived entirely regardless of employment type, and payment goes to the nominee or legal heir (death) or the employee directly (disability). If none of these apply and the service threshold hasn't been met, no gratuity is payable, regardless of how the employee's tenure ended (resignation, termination for non-misconduct reasons, or otherwise).

Once eligibility is established, a SEPARATE question determines the formula: is the establishment covered under the Payment of Gratuity Act (15/26 divisor) or not (15/30 divisor)? Is it a seasonal establishment (7 days per season, a different formula entirely)? These don't affect WHETHER gratuity is payable, only HOW MUCH.

Common eligibility mistakes

The most common mistake is applying the 5-year rule uniformly to fixed-term employees, understating what they're owed under the newer 1-year rule. The second most common is disregarding a final partial year that actually exceeds 6 months and should round up to add a qualifying year. The third is forgetting that termination for reasons OTHER than proven misconduct (redundancy, for instance) does not disqualify an otherwise-eligible employee from gratuity.