Ever wondered what you’re entitled to when you leave a long-term job? That “thank you” money from your employer is called gratuity — and no, it’s not just a nice gesture. It’s a legal right in many countries, especially across Asia and the Middle East.
Let’s break down how gratuity works and how to calculate it in a way that’s easy and clear. 😊
Table of Contents
🙋 What Is Gratuity?
Gratuity is a lump-sum payment made by an employer to an employee as a reward for long service. It’s like a golden goodbye — a way of saying, “Thanks for sticking around!”
You typically become eligible for gratuity after completing a minimum number of years with the company (usually 5 years in places like India or the UAE).
🧮 The Basic Gratuity Formula
Here’s a commonly used formula (in countries like India):
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26
Where:
- Last Drawn Salary = Basic + Dearness Allowance (if applicable)
- 15 = 15 days of salary for each year of service
- 26 = Average working days in a month
- Years of Service = Total completed years (partial years may or may not count depending on local law)
☕ Example Time!
Let’s say:
- You worked for 10 years
- Your last basic salary = $1,000/month
Apply the formula:
Gratuity = (1,000 × 15 × 10) ÷ 26
= (150,000) ÷ 26
≈ $5,769.23
✅ You’d receive around $5,769 as gratuity after 10 years!
🌍 Different Countries, Different Rules
Gratuity isn’t calculated the same everywhere. Here are a few examples:
🇮🇳 India
- Eligibility: 5+ years of service
- Formula as above
- Tax-free up to ₹20 lakh (for private sector)
🇦🇪 UAE
- Eligibility: 1+ year of service
- 21 days’ salary per year (for first 5 years), then 30 days per year
- Based on basic salary only
🇸🇬 Singapore / USA / UK
- No mandatory gratuity — often replaced by other benefits like pensions or severance pay
Always check your local labor law or employment contract.
🧾 Things to Keep in Mind
- Only completed years are usually counted
- Leaves without pay might reduce your total eligible time
- Contract types (permanent vs. fixed-term) can affect eligibility
- Voluntary resignation may or may not impact gratuity payout depending on country laws
🧠 Final Thoughts
Gratuity might sound like a fancy HR word, but it’s really just a thank-you bonus for your hard work and loyalty. Knowing how to calculate it helps you:
- Plan your finances
- Understand your end-of-service benefits
- Avoid getting shortchanged when leaving a job
Just remember:
Gratuity = (Last Salary × 15 × Years of Service) ÷ 26