Definition of Gratuity Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a reward for long-term and continuous service. It is a statutory benefit governed by the Payment of Gratuity Act, 1972. An employee becomes legally entitled to gratuity after completing a minimum of five years of continuous service with the same employer. Gratuity is generally payable upon retirement, resignation, death, or permanent disability. Eligibility and Application of