Gratuity Calculator
Calculate your gratuity payout based on years of service and last drawn salary. Covers the standard formula used in many countries.
How Gratuity Calculation Works
Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a token of appreciation for the services rendered over a period of time. It is one of the most important retirement and separation benefits available to employees in many countries, particularly in India, the UAE, and several other nations across Asia and the Middle East. The gratuity amount is determined by a standard formula that takes into account your last drawn salary, any applicable dearness allowance, the number of gratuity days per year of service, and your total years of continuous service with the organization.
The purpose of gratuity is to provide financial security to employees after they leave an organization, whether through resignation, retirement, or termination. It acts as a form of reward for loyalty and long-term service. In many jurisdictions, gratuity is a statutory right governed by specific legislation, such as the Payment of Gratuity Act, 1972 in India, which covers establishments with 10 or more employees.
Gratuity Formula
Gratuity = (Last Drawn Salary + Dearness Allowance) × Gratuity Days × Years of Service / 26
Where:
- Last Drawn Salary = Your last drawn basic monthly salary
- Dearness Allowance (DA) = Monthly dearness allowance component, if applicable (otherwise 0)
- Gratuity Days = Number of days of salary per year of service (typically 15 for covered employees, 30 for non-covered)
- Years of Service = Total years of continuous service with the employer
- 26 = Number of working days in a month (standard divisor used in the formula)
Why Is the Divisor 26?
The number 26 in the gratuity formula represents the standard number of working days in a month. This is derived from the assumption of a six-day work week: 30 or 31 calendar days minus 4 or 5 Sundays gives approximately 26 working days. This is the universally accepted divisor used in gratuity calculations under most statutory frameworks. Using 26 instead of 30 or 22 ensures that the daily salary rate accurately reflects what an employee earns per working day, which is the basis for computing the gratuity benefit. This convention is followed regardless of whether the employee actually works five or six days a week.
Eligibility for Gratuity
In most jurisdictions, an employee must complete a minimum of five years of continuous service with the same employer to be eligible for gratuity. However, there are exceptions. In the event of death or disablement, the five-year requirement is often waived, and the gratuity is payable to the employee or their nominee regardless of the length of service. Some countries and companies also have more generous policies that reduce the minimum service requirement. Fixed-term contract employees may also be eligible for gratuity calculated on a pro-rata basis for the period of service completed.
Covered vs. Non-Covered Employers
The distinction between covered and non-covered employers affects the number of gratuity days used in the calculation. Covered employers are those who fall under the purview of the applicable gratuity legislation, typically establishments with 10 or more employees. For employees of covered establishments, the standard gratuity entitlement is 15 days of salary for each completed year of service. Non-covered employers, such as smaller businesses that fall outside the statutory requirement, may still offer gratuity voluntarily. In such cases, the gratuity days per year can be higher, often 30 days, depending on the terms of the employment agreement or the company's internal policies.
Example Calculations
Example 1: 5 Years of Service at 40,000/month
An employee has a last drawn basic salary of 40,000 per month with no dearness allowance and 15 gratuity days per year.
- Base = 40,000 + 0 = 40,000
- Gratuity = 40,000 × 15 × 5 / 26 = 115,384.62
Example 2: 10 Years of Service at 60,000/month
An employee earns 60,000 basic salary with a dearness allowance of 5,000. Gratuity days are 15 per year.
- Base = 60,000 + 5,000 = 65,000
- Gratuity = 65,000 × 15 × 10 / 26 = 375,000.00
Example 3: 15 Years of Service at 80,000/month
A senior employee earns 80,000 basic salary with no DA and 15 gratuity days per year of service.
- Base = 80,000 + 0 = 80,000
- Gratuity = 80,000 × 15 × 15 / 26 = 692,307.69
Tax Implications of Gratuity
The tax treatment of gratuity depends on your country of residence and whether you work for a government or private employer. In India, for example, gratuity received by government employees is fully exempt from income tax. For private-sector employees covered under the Payment of Gratuity Act, the least of the following three amounts is exempt: the actual gratuity received, 15 days salary for each completed year of service (based on the last drawn salary), or a specified maximum limit set by the government. Any amount exceeding the exempt portion is taxable as salary income. It is advisable to consult a tax professional or refer to the latest tax guidelines in your jurisdiction to determine your exact tax liability on gratuity payments.
When Is Gratuity Paid?
Gratuity is typically payable upon resignation, retirement, superannuation, death, or disablement of the employee. In most statutory frameworks, the employer is required to pay the gratuity within 30 days of it becoming due. Failure to pay within this period may attract interest on the delayed payment. Employees should ensure they submit a formal application for gratuity to their employer or the controlling authority to initiate the payment process. In cases of dispute, employees can approach the appropriate labour authority or gratuity tribunal for resolution.
Current 2026 Gratuity Rates by Country
Gratuity (end-of-service benefit) rules differ widely by jurisdiction. The table below summarises the statutory minimums in major Gulf and South Asian markets as of 2026. Always confirm with the latest official notification — figures here reflect rates enforced through Q1 2026.
| Country | Governing Law | Formula (per year of service) | Cap / Notes |
|---|---|---|---|
| UAE | Federal Decree-Law No. 33 of 2021 (u.ae) | 21 days basic wage first 5 years, 30 days basic wage thereafter | Capped at 2 years total wages; expats fully tax-free |
| India | Payment of Gratuity Act 1972 (amended 2018) (labour.gov.in) | 15 × last drawn salary / 26 × completed years | Tax-free up to ₹20 lakh under Section 10(10) |
| Saudi Arabia | Labour Law Article 84 (mol.gov.sa) | Half-month wage first 5 years, full month thereafter | Tax-free for expats; reduced if employee resigns <2y |
| Qatar | Labour Law No. 14 of 2004, Article 54 | 3 weeks basic wage minimum per year | Higher rate may apply by contract; payable after 1y service |
| Oman | Royal Decree 35/2003 | 1 month basic wage per year first 3 years, 2 months thereafter | Replaced by Social Protection Fund for new hires from 2024 |
| Philippines | Labour Code Article 287 (Retirement Pay) | 22.5 days × salary × years (1/2 month per year) | Optional retirement age 60, mandatory 65 |
If you work in the Gulf or are planning your exit, also check our Severance Pay Calculator and Notice Period Buyout Calculator for parallel exit benefits, and our Final Settlement Estimator when leaving employment.
Gratuity Regulation Updates & Sunset Provisions
Gratuity law is moving fast in 2026 — three regional shifts are worth watching when you plan your exit or settlement:
- India — proposed eligibility cut. Parliamentary committees have repeatedly debated lowering the 5-year minimum service threshold (under the Payment of Gratuity Act 1972) to 1–3 years, aligning with the Code on Social Security 2020 for fixed-term workers. As of 2026, fixed-term contract employees already qualify on a pro-rata basis; permanent-employee threshold is still 5 years. Track updates via labour.gov.in.
- UAE — MOHRE Wage Protection & alternative end-of-service savings scheme. Since 2024, employers may opt into the voluntary alternative savings scheme (DIFC-style funded plan) where gratuity is invested monthly instead of accruing as a contingent liability. The 2026 enforcement adds stronger non-payment penalties under the u.ae end-of-service portal.
- Saudi Arabia — end-of-service insurance fund. A 2024–2026 reform proposal under discussion would replace the traditional employer-funded EOSB with a monthly insurance contribution model, similar to the GOSI structure. Until enacted, the Article 84 formula above remains in force; see mol.gov.sa for the latest decree.
- Oman — Social Protection Fund migration. New private-sector hires from July 2024 onward accrue benefits via the unified Social Protection Fund instead of the legacy 1-month / 2-month gratuity formula. Existing employees retain old rights until termination.
Related calculators on Teamz Lab Tools: Leave Encashment Calculator, Notice Period Calculator, Last Working Day Calculator, and Salary Per Day Calculator for daily-wage-based payouts.
Last updated: 2026. Rates and provisions reflect statutes enforced through Q1 2026. Confirm with the official ministry portal in your jurisdiction before relying on the figure for legal purposes.
Frequently Asked Questions
What is gratuity?
Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a reward for long and continuous service. It is typically calculated based on the employee's last drawn salary and the number of years they have worked for the organization. In many countries, gratuity is a statutory right governed by specific legislation, and employers are legally obligated to pay it when certain conditions are met, such as completion of a minimum service period.
What is the minimum number of years required to be eligible for gratuity?
In most statutory frameworks, an employee must complete a minimum of five years of continuous service with the same employer to be eligible for gratuity. However, this requirement is typically waived in cases of death or permanent disablement of the employee, where gratuity becomes payable regardless of the length of service. Some companies and countries may have more lenient eligibility criteria, so it is important to check the specific rules that apply to your employment.
Is gratuity taxable?
The tax treatment of gratuity varies by country and employment type. In many jurisdictions, government employees receive full tax exemption on their gratuity. For private-sector employees, a portion of the gratuity may be exempt from tax up to certain limits, while the remaining amount is taxable as salary income. The exempt amount is usually the least of the actual gratuity received, a calculated formula-based amount, or a government-specified maximum limit. Always consult a tax professional for guidance specific to your jurisdiction.
Why is the divisor 26 in the gratuity formula?
The number 26 represents the standard number of working days in a month, based on the assumption of a six-day work week with four Sundays off. This divisor is used to convert the monthly salary into a daily salary rate, which is then used as the basis for the gratuity calculation. The use of 26 is a legal convention followed in most statutory gratuity frameworks, and it applies uniformly regardless of whether the employee actually works five or six days a week.
What happens if I have worked less than 5 years?
If you have worked for fewer than five years of continuous service, you are generally not eligible for gratuity under most statutory laws. However, there are important exceptions. If an employee dies or becomes permanently disabled during their employment, the five-year requirement is typically waived and gratuity is paid regardless of the length of service. Additionally, some employers voluntarily offer gratuity to employees who leave before completing five years as part of their company policy or employment contract terms.
What are the current 2026 gratuity rates in UAE and India?
In the UAE (Federal Decree-Law No. 33 of 2021), expat workers earn 21 days of basic wage per year for the first 5 years of service and 30 days per year thereafter, capped at a total of 2 years of wages. In India, the Payment of Gratuity Act 1972 (as amended in 2018) uses the formula: 15 days × last drawn salary / 26 × completed years of service, with the gratuity amount tax-free up to ₹20 lakh under Section 10(10) of the Income Tax Act. Both rates are confirmed via official ministry portals (u.ae for UAE, labour.gov.in for India) as enforced through Q1 2026.
Is gratuity taxable in 2026?
Tax treatment varies sharply by country in 2026. UAE and Saudi Arabia: gratuity is fully tax-free for expat employees, as neither country levies personal income tax on salaries. India: under Section 10(10) of the Income Tax Act, gratuity is tax-exempt up to ₹20 lakh — anything above is taxable as salary income. Qatar and Oman: tax-free for expats. Pakistan and Bangladesh: gratuity is generally taxable as salary income, though specific exemptions may apply under the relevant Income Tax Ordinance — always consult a local tax advisor. Government employees in most jurisdictions enjoy full exemption regardless of the amount.