Understanding Gratuity - Eligibility, Calculation, and Payment Under the Code on Social Security, 2020

As per Section 53 of the Code on Social Security, 2020 (CSS Code), every employee with a continuous service of five years is eligible for gratuity at the time of termination, superannuation, retirement, resignation, death, or disablement.

However, the five-year requirement does not apply in certain cases, including:

Especially in the case of fixed-term employment, the employee is eligible for gratuity after just one year of service.

As per Section 53(2) of the CSS Code, 2020, gratuity has to be calculated by using the Completed Year (Rounding-Off) Basis for all regular/permanent employees. This means that if an employee works more than six months in a year, it will be considered as one full year.

However, Proviso three of Section 53(2) states that the Pro-Rata Basis is to be used only for:

The formula for calculating gratuity remains consistent across contract labour, permanent workers, and fixed-term employment:

$$\frac{\text{Last Drawn Salary} \times 15 \times \text{Years of Service}}{26}$$

Note: The definition of "wages" should be as per the new code, i.e., Section 2(88) of the Code on Social Security. This means that wages shall constitute 50% of the total remuneration.

Section 56(3) requires the employer to determine the gratuity payable, irrespective of whether the employee has submitted an application. The employer must:

This obligation applies even if the employee does not apply for gratuity. Furthermore, as per Section 56(2) of the Code on Social Security, an employer must determine gratuity and send a notice even if the employee has not submitted an application.

According to the Central Rules of the Code on Social Security:

However, since many states have not yet notified these rules, they are currently not applied or enforceable at the state level.