What is gratuity and who is entitled to it in India?

Gratuity is a lump sum that a company pays when an employee leaves an organization; one of the many retirement benefits offered by a company to an employee.

Basic requirements for gratuity are set out under the Payment of Gratuity Act 1971. The Payment of Gratuity Act, 1971 applies to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments for at least five full years with ten or more employees. Years of service does not matter in the event that an employee passes away or is rendered disabled due to accident or illness, in which case gratuity must be paid to the employee's nominee. Gratuity is fully paid by the employer and no part comes from an employee's salary.

Gratuity is paid when an employee:

• Reaches the time of superannuation (retiring at the age of 58);
• Retires at any other age;
• Resigns; or
• Passes away or is rendered disabled due to accident or illness.