Which countries require gratuity?

Gratuity is a statutory end-of-service entitlement in markets including India, the United Arab Emirates, and several South-East Asian countries. Each sets its own qualifying period, formula and caps, so the amount owed for the same tenure can differ sharply from one country to the next.

Do employers have to fund gratuity in advance?

Practice varies. Some employers accrue for gratuity across the employee's service so the liability is funded when it falls due, and some jurisdictions require or encourage this. Treating it as an unfunded surprise at the point of exit is a common cause of cash-flow strain and disputes.

It depends on the country and the amount. In India, gratuity is exempt from income tax up to a statutory ceiling of 20 lakh rupees, with sums above that taxed. Because the treatment is country-specific, confirm the local rule before assuming a payment is tax-free.

How does an employer of record handle gratuity?

An employer of record operating in a gratuity market tracks each worker's length of service, accrues the liability, and pays the correct amount when employment ends. That keeps the departing employee's statutory entitlement intact without you having to administer the calculation yourself.

Glossary

Gratuity

Gratuity is a statutory end-of-service payment that employers in several markets, including India and the UAE, must pay a departing employee, calculated from length of service and final salary and owed on resignation, retirement or termination after a qualifying period.

Reviewed by Teamed's in-house employment-law team·Last updated 28 July 2026

Also known as: end-of-service gratuity, end-of-service benefit

What is Gratuity?

Gratuity is a lump-sum payment that an employer owes an employee at the end of their service, required by law in a number of markets, most notably India, the United Arab Emirates, and parts of South-East Asia. It rewards continuous service and is paid on resignation, retirement, or termination once the worker has passed a minimum length of employment.

The amount is set by a statutory formula rather than left to the employer. It typically scales with the number of completed years of service and the employee's final salary, so a longer-serving worker on a higher wage is owed more.

Because gratuity is a legal entitlement, it forms part of the true cost of employing someone in these markets. An employer of record or payroll provider operating there has to accrue and pay it correctly, or the departing employee can pursue the shortfall.

How is gratuity calculated in India?

Under India's Payment of Gratuity Act 1972, the standard formula is the last drawn monthly salary multiplied by 15, multiplied by the number of completed years of service, divided by 26. The 15 stands for 15 days of wages a year, and the 26 for the assumed working days in a month.

Only completed years count toward the calculation, and rules on rounding a final part-year vary, so confirm how the last partial year is treated before paying.

When is gratuity payable?

Gratuity generally becomes payable once an employee has completed a qualifying period of continuous service, then leaves through resignation, retirement, or termination. In India, that qualifying period is five years, though it is waived where service ends through death or disability. Other markets set their own thresholds and formulas.

Is gratuity the same as severance pay?

Not quite. Gratuity is a service-based reward that accrues over time and is usually owed however the employment ends, once the qualifying period is met. Severance pay is compensation tied specifically to dismissal or redundancy. A departing employee may be entitled to both, depending on the country and the reason for leaving.

Key facts

India: legal basis and formula: Payment of Gratuity Act 1972: gratuity equals (last drawn salary x 15 x completed years of service) divided by 26.Payable after five years of continuous service. Statutory tax-exempt ceiling is 20 lakh rupees.Source: Labour Department, Government of NCT of Delhi· verified 2026-07-28

Frequently asked questions

Which countries require gratuity?
Gratuity is a statutory end-of-service entitlement in markets including India, the United Arab Emirates, and several South-East Asian countries. Each sets its own qualifying period, formula and caps, so the amount owed for the same tenure can differ sharply from one country to the next.
Do employers have to fund gratuity in advance?
Practice varies. Some employers accrue for gratuity across the employee's service so the liability is funded when it falls due, and some jurisdictions require or encourage this. Treating it as an unfunded surprise at the point of exit is a common cause of cash-flow strain and disputes.
Is gratuity taxable?
It depends on the country and the amount. In India, gratuity is exempt from income tax up to a statutory ceiling of 20 lakh rupees, with sums above that taxed. Because the treatment is country-specific, confirm the local rule before assuming a payment is tax-free.
How does an employer of record handle gratuity?
An employer of record operating in a gratuity market tracks each worker's length of service, accrues the liability, and pays the correct amount when employment ends. That keeps the departing employee's statutory entitlement intact without you having to administer the calculation yourself.

Related terms

Note

This is general information, not legal advice. Statutory rules vary by country and change over time.

Glossary

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Last verified 2026-07-28