Gratuity

Gratuity refers to a sum of money given to a person in recognition of services rendered. In everyday use, it is most often a voluntary tip or token of appreciation paid by a customer to a service worker. In some jurisdictions, gratuity also denotes a statutory payment from an employer to an employee on leaving or after long service, separate from wages.

In many countries, tipping practices vary widely by culture and industry. Customers may leave gratuities directly to staff, or establishments may add a service charge that is distributed to employees. Gratuity can supplement wages that may be low in certain service sectors, and rules about tipping, service charges, and wage obligations differ across jurisdictions.

Legal frameworks around gratuity differ significantly. In India, the Payment of Gratuity Act, 1972, requires eligible employees to receive gratuity on termination after at least five years of service. The amount is typically calculated as 15 days’ wages for each completed year of service, based on the employee’s last drawn wages, subject to a statutory maximum limit. In the United States, there is no universal national gratuity law; tips are generally governed by wage and hour regulations, and employers may or may not credit tips toward minimum wage. Some employers impose mandatory service charges that are distributed to staff.

Accounting and budgeting considerations treat gratuity as a liability or provision for future payments, with actuarial or funded arrangements used in some organizations. Gratuity remains a familiar concept across workplaces and cultures, encompassing both voluntary tips and statutory severance obligations.