Difference Between Gratuity and Pension


Main Difference

The main difference between Gratuity and Pension is that Gratuity is an amount of money that a concern pays to an employee for services delivered in the company, and Pension is an amount of money that is paid regularly or repeatedly by the government or concern to people after their formal retirement.

Gratuity vs. Pension

A Gratuity is a lump-sum compensation given by the employer or owner. It is a mark of gratitude to the employee’s service, whereas pension is a regular compensation made by the state-owned or government to people after their formal retirement, to widows, and disabled or accessible people. It is submitted earnings of individual’s services in the past. Gratuity is subordinated or bound by the Payment of Gratuity Act, while pension directed or administered under the Employees’ Pension Scheme. For gratuity to become suitable, responsible service of 5 years is obligatory, and as for pension, it’s ten years. Gratuity funded in a lump sum whereas pension payments funded in installments.


Comparison Chart

Gratuity can comprehend as a public or collective security advantage delivered to the teams by the company in gratitude of service, after their retirement or passing.Pension is collect money or saves some money pattern, in which corporation devotes a fixed sum in certifying or guaranteeing recompense of secure sum at even intervals, to the worker or his/her conditional stayers, after leaving or passing.
What is it?
GiftRetirement plan
Contributory Work Experience
At least five years of work experience is compulsory.At least ten years of work experience is compulsory.
Lump-sum paymentInstallment payment

What is Gratuity?

Gratuity is an amount or section of the earnings that are expected by a member or worker by his/her corporation in appreciation for the provision of services by the wage-earner in the corporation. Gratuity is a clearly defined advantage plan and is part of various retirement recompenses offered by the corporation to the worker after parting or leaving his occupation and service. An employee might be parting his service for numerous causes, like leaving or giving up effort and service, for a higher occupation someplace else, on being restricted or by way of planned retirement. Gratuity paid when an employee ends five or further years of full-time service with the company.


A company may compromise gratuity out of his capitals or may access a life insurer to buy a set or group gratuity plan. By any chance the concern chooses a life guarantor or insurer, he has to pay yearly assists as categorical or definite by the insurer. The wage earner or member of staff is also free to make assistance to his gratuity saving account or fund. The gratuity will payout by the insurance firm made upon the circumstances of the group or combine gratuity pattern. The gratuity adapted by the worker is taxable indoors the head ‘salary from income’. In this instance, gratuity expected by the contender or legal inheritors of the worker; the same is tax-exempt in their own hands in the head ‘earning from different origins.’

What is a Pension?

A pension is a category of a retirement proposal that offers monthly proceeds or income in retirement, not all companies’ proposal pensions. Administration or state governments generally deal a pension, and some enormous establishments offer them. With a pension proposal or plan, the company funds cash to the pension plan where you are employed. The sum of cash will account to you, usually as an intervocalic or periodic check-in giving up work, when you extend certain leaving phase or age. The formulation a pension uses grounded on an amalgamation or combination of your length of employment with the company proposing the pension, your age, and your payment.

Pension schemes must follow definite directions or rules specified by the department of employment. These procedures explain how long or how much the corporation must reserve each year into a reserves deposit to be capable of carrying you a clearly-defined retirement or pension fund amount in the forthcoming. Most pension profit or benefits are nonexempt or taxable. When you begin to have pension remunerations, you must explain if you should have taxed outstanding from your pension reimbursement. If after-tax cash paid to the pension, a portion or section perhaps tax-free. If your company deals a pension, they can decide to dismiss or terminate. In this condition, your gathered profit normally turn into iced up or fixed. In some instances, pension policies were accomplished badly and were not able to pay off all of the guaranteed or promised paybacks.

Key Differences

  1. Gratuity is devote to employees that have assisted the company loyally for a long time and rewarded when the employee give up work or resigns, while there is alternative retirement scheme named as pension, which promises nonstop payment of fixed amount to the individual or his dependent stayers, for the services or jobs extracted by him/her to the association.
  2. Gratuity contains once-off payment in which the company delivered the total sum at once, on the contrary, pension in which, the employee acquires fixed cash in the form of regular or monthly payments.
  3. To be qualified for gratuity, an individual needs to effort or work for at least of 5 years with the same company, on the other end, for the claim of pension, at least ten years of operational service is required.


In a nutshell, Gratuity and Pension are the supports or aids that are offered to the staffs by the corporation, in time of end of occupation or work, because of giving up work or service and leaving. The amount of gratuity and pension changing from participant to participant, about their earnings and years or time of running of service.