Gratuity is a one-off payment recognising an employee's continuous service, paid when they leave. Unlike a bonus, it is a legal obligation in the countries that mandate it, and it accrues quietly in the background from an employee's first day.
How it works in India
Under the Payment of Gratuity Act, employers with ten or more employees owe gratuity to anyone who completes five years of continuous service. The amount is calculated from the employee's last drawn basic salary and dearness allowance, multiplied by the number of completed years, using a formula set out in the Act. The five-year condition is waived if employment ends because of death or disability.
How it differs in the Gulf
The UAE, Saudi Arabia, Qatar and their neighbours operate a similar concept usually called end-of-service gratuity or end-of-service benefit. The qualifying period is typically one year rather than five, and the accrual rate often steps up once an employee passes five years of service. The reason for leaving can also change the entitlement, with resignation sometimes attracting a reduced payment compared with dismissal.
Why it matters when hiring internationally
Gratuity is a real cost that builds up invisibly. A company budgeting only for salary and social contributions will find itself short when someone with several years of service departs. Because it is a statutory liability of the legal employer, an Employer of Record carries it on your behalf and should be funding it as it accrues rather than presenting it as a surprise at termination.
Ask any provider you are evaluating how gratuity is accrued and held. The answer tells you whether the liability is being provisioned properly or simply passed to you as an invoice when an employee resigns.