Gratuity vs. Bonus — What's the Difference?
By Tayyaba Rehman & Urooj Arif — Updated on March 14, 2024
Gratuity is a mandatory benefit paid for long-term service, often upon retirement, while bonuses are discretionary rewards for performance or achievements within a fiscal year.
Difference Between Gratuity and Bonus
Table of Contents
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Key Differences
Gratuity is often seen as a form of financial thanksgiving from an employer to an employee for their years of service, usually paid at the time of retirement or under specific conditions defined by the employment terms. On the other hand, bonuses are typically performance-based or profit-sharing incentives given in addition to an employee’s regular compensation, reflecting the individual’s or company’s success over a shorter term, such as a fiscal year.
While gratuity payments are governed by legal frameworks in many countries, ensuring employees receive this benefit after a certain period of service, bonuses are generally at the employer's discretion, with no legal obligation to pay unless specified in an employment contract or agreement.
Gratuity amounts are usually calculated based on the length of service and the salary of the employee, highlighting the reward for long-term commitment and loyalty to an organization. In contrast, bonus amounts can vary greatly, influenced by the company's profitability, the employee's performance, and other factors, providing a flexible reward mechanism.
Gratuity serves as a retirement benefit, providing financial security to employees as they transition out of their working life. Whereas bonuses are often used as a motivational tool to encourage high performance and align employees’ interests with the goals of the company.
The eligibility for gratuity is typically based on a minimum period of service within an organization, which ensures that it is a benefit aimed at retaining and rewarding long-term employees. Conversely, bonuses can be awarded to any employee, regardless of their tenure, based on their contribution to the company’s objectives.
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Comparison Chart
Nature
Mandatory (in many countries), service-based
Discretionary, performance-based
Purpose
Reward for long-term service
Incentivize performance, share profits
Calculation Basis
Length of service and last drawn salary
Company's profitability, individual's performance
Payment Timing
At retirement or upon meeting specific conditions
Usually annually or quarterly
Legal Requirement
Governed by laws in many regions
Not legally required, unless specified
Compare with Definitions
Gratuity
Legally Mandated in Many Countries.
The law requires companies to pay gratuity to qualifying employees upon retirement.
Bonus
Performance Reward.
Lisa received a substantial bonus for exceeding her sales targets this year.
Gratuity
Retirement Benefit.
The gratuity he received added a significant amount to his retirement fund.
Bonus
Motivational Tool.
The prospect of a year-end bonus motivated employees to work harder.
Gratuity
Long-term Service Reward.
After 30 years with the company, John received a gratuity as a thank you for his service.
Bonus
Varies Each Year.
His bonus was higher this year due to the company's improved financial performance.
Gratuity
Calculated Based on Service Length.
Her gratuity was calculated based on her 25 years of service and final salary.
Bonus
Discretionary by the Employer.
The company decided to give bonuses this year due to exceptional profits.
Gratuity
Minimum Service Requirement.
Only employees with over five years of service are eligible for gratuity.
Bonus
No Minimum Service Requirement.
Even new employees received a bonus for their contributions to the project.
Gratuity
A gratuity (normally called a tip) is a sum of money customarily given by a client or customer to certain service sector workers for the service they have performed, in addition to the basic price of the service. It may or may not be customary to tip servers in bars and restaurants, taxi drivers (including ridesharing), hair stylists and so on, but this depends on the country or location.
Bonus
Something given or paid in addition to what is usual or expected.
Gratuity
A favor or gift, usually in the form of money, given in return for service.
Bonus
A sum of money or an equivalent given to an employee in addition to the employee's usual compensation.
Gratuity
An additional payment given freely as thanks for service.
Bonus
A sum of money in addition to salary that is given to a professional athlete for signing up with a team.
Gratuity
Euphemistic form of fee, in contexts where such additional payments have been made obligatory.
Bonus
A subsidy from a government to an industry.
Gratuity
Euphemistic form of bribe
Bonus
A sum of money paid by a government to a war veteran.
Gratuity
Something given freely or without recompense; a free gift; a present.
Bonus
A premium, as of stock, that is given by a corporation to another party, such as a purchaser of its securities.
Gratuity
Something voluntarily given in return for a favor or service, as a recompense or acknowledgment.
Bonus
A sum of money that is paid by a corporation in excess of interest or royalties charged for the granting of a privilege or a loan to that corporation.
Gratuity
A relatively small amount of money given for services rendered (as by a waiter)
Bonus
(Basketball) An additional free throw awarded to a player who has been fouled when the opposing team has committed more than a specified number of fouls during a period of play.
Gratuity
An award (as for meritorious service) given without claim or obligation
Bonus
Something extra that is good; an added benefit.
Bonus
An extra sum given as a premium, e.g. to an employee or to a shareholder.
The employee of the week receives a bonus for his excellent work.
Bonus
(video games) An addition to the player's score based on performance, e.g. for time remaining.
Bonus
(basketball) One or more free throws awarded to a team when the opposing team has accumulated enough fouls.
Bonus
(transitive) To pay a bonus, premium
Bonus
A premium given for a loan, or for a charter or other privilege granted to a company; as the bank paid a bonus for its charter.
Bonus
An extra dividend to the shareholders of a joint stock company, out of accumulated profits.
Bonus
Money paid in addition to a stated compensation.
Bonus
Anything that tends to arouse;
His approval was an added fillip
Bonus
An additional payment (or other remuneration) to employees as a means of increasing output
Common Curiosities
Who is eligible for gratuity?
Employees who have worked for a certain minimum period, usually five years, at a company are eligible for gratuity.
What is gratuity?
Gratuity is a financial benefit given by an employer to an employee as a gesture of thanks for the employee's long-term service, typically at retirement.
Is gratuity mandatory?
In many countries, gratuity is mandated by law for employees who meet certain service length criteria.
Can temporary or part-time employees receive gratuity?
Eligibility for gratuity typically depends on the terms of employment and local laws, but it generally applies to permanent employees.
What is a bonus?
A bonus is a financial reward given to an employee beyond their usual salary, often as a result of their performance or the company's profitability.
How is gratuity calculated?
Gratuity is calculated based on the employee's length of service and the salary at the time of leaving the company or retirement.
Can a bonus be guaranteed?
Bonuses are not usually guaranteed and are often at the discretion of the employer, based on performance or company profits.
Do all companies offer bonuses?
Not all companies offer bonuses; it depends on the company’s policy, financial health, and management decisions.
How often are bonuses paid?
Bonuses can be paid annually, semi-annually, quarterly, or at other intervals, depending on the company's policy.
Are gratuity payments taxable?
Taxation on gratuity depends on local tax laws and the amount received, with many places offering exemptions up to a certain limit.
How does gratuity benefit employees?
Gratuity provides financial support to employees at retirement, acknowledging their long-term service and loyalty.
Is there a legal framework governing bonuses?
While some contracts may stipulate bonus payments, there is usually no specific legal framework governing bonuses like there is for gratuity in many places.
Why do companies give bonuses?
Companies give bonuses to motivate employees, reward performance, and align employees’ efforts with company goals.
Can gratuity be forfeited?
Under certain conditions, such as dismissal for misconduct, an employee's gratuity can be forfeited.
What factors influence the amount of a bonus?
Bonus amounts can be influenced by individual or company performance, profitability, and sometimes the discretion of management.
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Written by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
Co-written by
Urooj ArifUrooj is a skilled content writer at Ask Difference, known for her exceptional ability to simplify complex topics into engaging and informative content. With a passion for research and a flair for clear, concise writing, she consistently delivers articles that resonate with our diverse audience.
