Compliance
Is gratuity applicable to a clinic? Gratuity and bonus rules The ten-employee and twenty-person thresholds under the Labour Codes, as on October 2026.
Two of the oldest questions at a clinic's year end: does a receptionist who has been here six years get gratuity, and does anyone get a Diwali bonus by law? Both answers now sit in the Labour Codes, which came into force on 21 November 2025. We read the Codes and the 2026 notifications and set out when each duty starts for a clinic.
Published · Last reviewed · 9 min read
- Gratuity: Chapter V of the Code on Social Security, 2020 applies to "every shop or establishment in which ten or more employees are employed, or were employed, on any day of the preceding twelve months" (First Schedule, entry V(b)). Below ten, there is no statutory gratuity.
- Statutory bonus: Chapter IV of the Code on Wages, 2019 applies to an establishment "in which twenty or more persons are employed or were employed on any day during an accounting year" (s.41(2)). Eligible employees are those drawing wages up to ₹21,000 a month (S.O. 4711(E), 25 Aug 2026), with effect from 21 Nov 2025.
- Gratuity is due after five years of continuous service, at fifteen days' wages for every completed year; the minimum bonus is 8.33% of wages or ₹100, whichever is higher, for anyone who worked at least thirty days in the year.
Gratuity is applicable to a clinic once it has employed ten or more people on any day in the preceding twelve months, and statutory bonus once it has employed twenty or more persons on any day in the accounting year. A clinic with a receptionist, an attendant and a nurse is below both lines and owes neither by law; it may still pay a bonus as a matter of policy. The numbers come from the Code on Social Security, 2020 and the Code on Wages, 2019, both in force since 21 November 2025, and they replaced the Payment of Gratuity Act, 1972 and the Payment of Bonus Act, 1965 that most online summaries still quote.
Which law applies in 2026: the 1972 and 1965 Acts or the Codes?
The Codes. Notification S.O. 5319(E) of 21 November 2025 appointed that day as the date on which sections 1 to 14, 17 to 141 and 144 to 163 of the Code on Social Security, 2020 came into force, together with items 1, 2 and 4 to 9 of the repeal list in section 164(1); item 6 of that list is the Payment of Gratuity Act, 1972. On the same day, S.O. 5322(E) brought into force sections 1 to 41, 43 to 66 and most of the rest of the Code on Wages, 2019. Section 69(1) of that Code says the "Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 are hereby repealed".
Section 69(2) of the Code on Wages saves what was done under the old Acts: anything done "including any notification, nomination, appointment, order or direction made thereunder ... shall be deemed to have been done or taken or provided for such purpose under the corresponding provisions of this Code". So old gratuity nominations and bonus registers do not have to be redone, but the rules a clinic follows from now on are the Codes'. Our post on PF and ESI for small clinics covers the rest of the Code on Social Security; this post takes only gratuity and bonus.
How many staff before gratuity and bonus apply?
| Duty | Applies when | Who counts | Section |
|---|---|---|---|
| Gratuity | "every shop or establishment in which ten or more employees are employed, or were employed, on any day of the preceding twelve months" | "Employee" under s.2(26): any person employed on wages to do skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or any other work, directly or through a contractor | Code on Social Security, 2020, First Schedule entry V(b); s.2(26) |
| Statutory bonus | An establishment "in which twenty or more persons are employed or were employed on any day during an accounting year" | Persons employed; eligibility is then limited to employees drawing wages up to ₹21,000 a month | Code on Wages, 2019, s.41(2); s.26(1); S.O. 4711(E), 25 Aug 2026 |
| Accounting year | The year beginning 1 April | Code on Wages, 2019, s.2(a) |
Count heads, not salaries, and count the salaried doctor, the part-time cleaner and the evening-shift attendant. A clinic that touched ten employees for a single day in the last twelve months is inside the gratuity chapter for the next twelve months. Most single-doctor OPDs stay at three to six and never reach either line; a two- or three-doctor clinic with nurses, a lab technician and two shifts of front desk can cross ten without noticing.
What are the gratuity rules once a clinic is covered?
Section 53(1) of the Code on Social Security says gratuity "shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years", on superannuation, retirement or resignation, death or disablement, or the end of a fixed-term contract. The five years are not needed where the termination is due to death, disablement or the expiry of a fixed-term employment.
| Rule | What the Code says | Section |
|---|---|---|
| Qualifying service | "continuous service for not less than five years"; not needed on death, disablement or expiry of fixed-term employment | s.53(1) |
| Amount | "fifteen days' wages" for every completed year of service or part in excess of six months, on the wages last drawn; fixed-term and deceased employees pro rata | s.53(2) |
| Monthly-rated staff | "the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen" | s.53(2), Explanation 3 |
| Ceiling | "shall not exceed such amount as may be notified by the Central Government" | s.53(3) |
| Continuous service | Uninterrupted service including sickness, accident, leave and lay-off; otherwise deemed continuous for a year if the employee actually worked 240 days in the preceding twelve months | s.54 |
| Nomination | Every employee who has completed one year of service makes a nomination | s.55(1) |
| Employer's duty | Determine the amount and give written notice to the employee and the competent authority as soon as gratuity becomes payable, application or not; pay within thirty days; simple interest after that | s.56(2), (3), (4) |
| Mode | "paid through Demand Draft or by crediting in the bank account" | Social Security (Central) Rules, 2026, rule 33(3) |
| Claim form | Employee applies in Form-IV, ordinarily within thirty days of the gratuity becoming payable; a late application is not invalid | Social Security (Central) Rules, 2026, rule 33(1) |
| Forfeiture | Only for damage or loss to the employer's property, riotous or violent conduct, or an offence involving moral turpitude in the course of employment | s.53(6) |
| Insurance | Compulsory gratuity insurance "with effect from such date as may be notified by the appropriate Government" | s.57(1) |
Worked example, using only the formula in the Code: a receptionist on ₹18,000 a month who leaves after eight years and two months is owed 18,000 ÷ 26 × 15 = ₹10,384.62 for each of eight completed years, or ₹83,076.92. The two extra months do not count because they are not "in excess of six months". If the same person had stayed eight years and seven months, the ninth year would count. Fixed-term staff under the 2026 Rules qualify after at least one year on the contract, with a further period of more than six months rounded to an additional year (rule 33(1), second proviso).
Who gets a statutory bonus, and how much?
Chapter IV of the Code on Wages applies only to an establishment that employed twenty or more persons on any day in the accounting year (s.41(2)). Inside such an establishment, section 26(1) says bonus is paid "to every employee, drawing wages not exceeding such amount per mensem, as determined by notification, by the appropriate Government", who "has put in at least thirty days work in an accounting year". The amount is "an annual minimum bonus calculated at the rate of eight and one-third per cent. of the wages earned by the employee or one hundred rupees, whichever is higher whether or not the employer has any allocable surplus".
The wage ceiling was notified on 25 August 2026. S.O. 4711(E) "determines that every employee drawing wages not exceeding twenty-one thousand rupees per mensum shall be paid bonus as specified in the said sub-section", and paragraph 2 says the notification "shall be deemed to have come into force on the 21st day of November, 2025". A separate notification under section 26(2) fixes the wage figure on which the bonus of higher-paid eligible employees is calculated; we did not read it on a government site, so ask your CA for the current figure before computing.
| Rule | What the Code says | Section |
|---|---|---|
| Establishment covered | Twenty or more persons employed on any day in the accounting year | s.41(2) |
| Employee eligible | Wages not exceeding ₹21,000 a month; at least thirty days' work in the accounting year | s.26(1); S.O. 4711(E) |
| Minimum bonus | 8.33% of wages earned, or ₹100, whichever is higher, with or without allocable surplus | s.26(1) |
| Maximum bonus | Where allocable surplus exceeds the minimum, bonus in proportion to wages, up to 20% of wages | s.26(3) |
| New establishment | In the first five accounting years, bonus only for a year in which the establishment makes a profit | s.26(6) |
| "Wages" for the test | Basic pay, dearness allowance and retaining allowance; HRA, overtime, conveyance and bonus itself are excluded, subject to the 50% rule | s.2(y) |
A Diwali bonus paid by a four-person clinic is a gift, not a statutory bonus, and the clinic may fix it as it likes. Once the clinic crosses twenty persons the floor becomes 8.33% of each eligible employee's wages for the year, and the "first five years" relief in section 26(6) means a new clinic that is still making a loss owes nothing yet.
What does a clinic with three to nine staff actually owe?
- Nothing under the gratuity chapter and nothing under the bonus chapter. Both start at head counts the clinic has not reached.
- Minimum wages, the seventh-of-the-month pay date and the appointment letter still apply from the first employee. See minimum wages for clinic staff.
- Keep a head-count log. Write down every joining and leaving date, including part-timers and the salaried doctor. The gratuity test looks back twelve months; the bonus test looks at the accounting year.
- Decide the voluntary bonus in writing. If the clinic pays a festival bonus, say in the appointment letter that it is discretionary, so it is not read as a term of employment.
- When the tenth person joins, open a gratuity file: nominations after one year of service, a yearly provision in the accounts, and a note of each employee's date of joining for the five-year count.
What else changes at ten and twenty staff
Ten is also where ESI and maternity benefit begin under the Code on Social Security, and where the Occupational Safety, Health and Working Conditions Code, 2020 starts to treat the clinic as an "establishment" (ten or more workers, s.2(1)(v)), with its own leave and appointment-letter rules; our post on an employment contract for clinic staff covers the letter. Twenty is where provident fund begins. A clinic owner planning a second branch or a second shift should run the head count before signing the lease, not after.
Questions
Is gratuity payable by a clinic with fewer than ten employees?
No. Chapter V of the Code on Social Security, 2020 applies to a shop or establishment only when it has employed ten or more employees on any day of the preceding twelve months (First Schedule, entry V(b)). A clinic below ten may still pay a leaving benefit by agreement, and section 53(5) preserves any better terms the employer has promised.
Does a part-time attendant count towards the ten?
The Code counts "employees", defined in section 2(26) as any person employed on wages to do any kind of work, directly or through a contractor. There is no exclusion for part-time or hourly staff in the text, so count them.
Is the 8.33% bonus compulsory for a small clinic?
Only if the clinic employed twenty or more persons on any day in the accounting year (Code on Wages, 2019, s.41(2)). Below that, any bonus is voluntary.
Is gratuity still five years after the Labour Codes?
Yes for ordinary employment: section 53(1) requires "continuous service for not less than five years". The exceptions are death, disablement and the end of a fixed-term contract, where gratuity is paid pro rata without the five years.
Sources
- Ministry of Labour and Employment, S.O. 5319(E), 21 Nov 2025: commencement of the Code on Social Security, 2020 (Gazette of India Extraordinary No. 5143) (accessed 30 Oct 2026)
- Ministry of Labour and Employment, S.O. 5322(E), 21 Nov 2025: commencement of the Code on Wages, 2019 (Gazette of India Extraordinary No. 5146) (accessed 30 Oct 2026)
- The Code on Social Security, 2020 (No. 36 of 2020), Gazette of India copy hosted by PRS: s.2(26), ss.53–57, s.164, First Schedule (accessed 30 Oct 2026)
- The Code on Wages, 2019 (No. 29 of 2019), Gazette of India Extraordinary, 8 Aug 2019: ss.2(a), 2(y), 26, 41, 69 (accessed 30 Oct 2026)
- Ministry of Labour and Employment, S.O. 4711(E), 25 Aug 2026: wage ceiling of ₹21,000 for bonus eligibility under s.26(1) of the Code on Wages, 2019 (accessed 30 Oct 2026)
- Social Security (Central) Rules, 2026, G.S.R. 344(E), 8 May 2026: rules 31–33 (gratuity nomination, application, mode of payment) (accessed 30 Oct 2026)
- The Occupational Safety, Health and Working Conditions Code, 2020 (No. 37 of 2020), Gazette copy hosted by PRS: s.2(1)(v) (accessed 30 Oct 2026)
This is operational guidance for clinics, not legal or tax advice. Confirm with your state authority, council or CA.
Drafted with AI assistance; every fact checked against the sources listed; reviewed by the Vitels team.