I would like to know whether I am eligible to receive gratuity from the company which was initially operating as a proprietor firm for 3 years and then started operating as a private limited company. I have completed more than 5 years, considering the working days of both companies. I also withdrew my PF from the proprietorship firm, and now my PF account, code number, etc., are separate in the private limited company. Will my service be accounted for in continuity? The employer is saying that my service is discounted due to the withdrawal of PF and that I am not eligible for gratuity. Please guide me.
From India, Anand
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2From India, Anand
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Hi Balvant,
From your post, I understand that you have been working in a firm for 5+ years and now wish to claim gratuity benefits.
The firm worked as a proprietor for 3 years, and thereafter, it operates till date as a Pvt. Ltd. Co.
Can you elaborate on:
1. What was your employment duration in the firm when it was under proprietorship?
2. What was your employment duration in the firm as Pvt. Ltd. Co.?
3. The company must have undergone certain changes like getting registered, etc. As a result, have they changed their name (minorly or majorly)?
4. During the transition, were you given a new offer letter from the Pvt. Ltd. Co.? Or were you given any letter which mentions that your previous employment will be considered?
For the knowledge of others:
Kindly note that whenever a company changes its name, expands to ltd. co., or gets merged or acquired with another firm, it is our duty to ask for our future with the HR.
You must ask if your previous employment will be continued or if a fresh employment will be considered. In either case, we need to ask for such things in writing to produce it as proof.
Ideally, in such a scenario, HR produces a new offer letter and mentions that now you are an employee of the new firm, mentioning that you have been previously working for the firm since X period and that will be considered for all the benefits to be given in the future during separation (resignation/termination/retirement).
From India, Mumbai
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From your post, I understand that you have been working in a firm for 5+ years and now wish to claim gratuity benefits.
The firm worked as a proprietor for 3 years, and thereafter, it operates till date as a Pvt. Ltd. Co.
Can you elaborate on:
1. What was your employment duration in the firm when it was under proprietorship?
2. What was your employment duration in the firm as Pvt. Ltd. Co.?
3. The company must have undergone certain changes like getting registered, etc. As a result, have they changed their name (minorly or majorly)?
4. During the transition, were you given a new offer letter from the Pvt. Ltd. Co.? Or were you given any letter which mentions that your previous employment will be considered?
For the knowledge of others:
Kindly note that whenever a company changes its name, expands to ltd. co., or gets merged or acquired with another firm, it is our duty to ask for our future with the HR.
You must ask if your previous employment will be continued or if a fresh employment will be considered. In either case, we need to ask for such things in writing to produce it as proof.
Ideally, in such a scenario, HR produces a new offer letter and mentions that now you are an employee of the new firm, mentioning that you have been previously working for the firm since X period and that will be considered for all the benefits to be given in the future during separation (resignation/termination/retirement).
From India, Mumbai
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The basic thing to be done while making such changes in the management or constitution of the company is to ensure compliance as per Section 25FF of the Industrial Disputes Act. The said section says that no employee shall be transferred to the new company without paying retrenchment compensation as prescribed under Section 25F of the Act. However, if the service conditions are not altered and if the wages and other service benefits are fairer than the earlier company, there is no need to pay compensation, and the services of the employees shall continue without any break in service. Unless otherwise settled and in the absence of any option given to the employees as to whether they would like to join the new company or not, and in the absence of any payment given to those who decided not to join the newly formed company as retrenchment compensation, all the employees are deemed to have joined the company on the date on which they joined the former company.
The second issue is that when the employees in the partnership firm were transferred to the company, they closed the PF and allowed the employees to withdraw the PF and started new PF for them. It is acceptable that the newly formed company will have a new PF number, but what should have been done is to transfer the old PF accounts of each employee to the new ones by means of transfer forms, i.e., Form 13. For this, workers cannot be blamed. This was a managerial adjustment.
In view of the above, I find that those who have completed 5 years of service from the date of joining in the partnership establishment will be eligible for gratuity.
Madhu.T.K
From India, Kannur
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The second issue is that when the employees in the partnership firm were transferred to the company, they closed the PF and allowed the employees to withdraw the PF and started new PF for them. It is acceptable that the newly formed company will have a new PF number, but what should have been done is to transfer the old PF accounts of each employee to the new ones by means of transfer forms, i.e., Form 13. For this, workers cannot be blamed. This was a managerial adjustment.
In view of the above, I find that those who have completed 5 years of service from the date of joining in the partnership establishment will be eligible for gratuity.
Madhu.T.K
From India, Kannur
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You are eligible for gratuity, since it seems the partnership firm was converted into a pvt ltd company, hence continuation of the organization.
From India, Delhi
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From India, Delhi
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Respected Madhu Sir,
My view is different here.
According to me, section 25FF is not applicable in this case. Section 25FF is applicable when there is a transfer of undertaking, when there is a transfer of ownership or management of the undertaking.
In a given case, the queriest has worked with the proprietor for 3 years and then with a Private Limited Company for 2 years. Both of these undertakings, i.e., the Proprietary Firm and the Private Limited Company, are separate entities. The ownership of the first one was with the sole proprietor and of the other one with the board of directors. The entity of the second one is created by registering a company with ROC, and its commencement of business starts from the date of its incorporation as mentioned in the certificate issued by ROC.
Under these circumstances, it cannot be said that there is a transfer of undertaking or transfer of ownership or management.
Moreover, it seems there is a settlement of dues of the queriest by his proprietor in full and final. PF is also settled. He has no grounds to say that his service was transferred from one company to another one with some understandings.
According to me, there is no chance for the queriest to claim gratuity by law.
Hope you will agree with my contention.
From India, Mumbai
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My view is different here.
According to me, section 25FF is not applicable in this case. Section 25FF is applicable when there is a transfer of undertaking, when there is a transfer of ownership or management of the undertaking.
In a given case, the queriest has worked with the proprietor for 3 years and then with a Private Limited Company for 2 years. Both of these undertakings, i.e., the Proprietary Firm and the Private Limited Company, are separate entities. The ownership of the first one was with the sole proprietor and of the other one with the board of directors. The entity of the second one is created by registering a company with ROC, and its commencement of business starts from the date of its incorporation as mentioned in the certificate issued by ROC.
Under these circumstances, it cannot be said that there is a transfer of undertaking or transfer of ownership or management.
Moreover, it seems there is a settlement of dues of the queriest by his proprietor in full and final. PF is also settled. He has no grounds to say that his service was transferred from one company to another one with some understandings.
According to me, there is no chance for the queriest to claim gratuity by law.
Hope you will agree with my contention.
From India, Mumbai
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Dear sir/madam Can we claim gratuity under proprietorship?
From India, Bangalore
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From India, Bangalore
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Dear sir/madam Can we claim gratuity under proprietorship?
From India, Bangalore
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From India, Bangalore
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If you have worked for the minimum qualifying period of service required, you will get it irrespective of whether the establishment is a proprietorship or company. The only thing to be noted is that if your establishment is not a factory, plantation, or mine, there should be at least ten employees in your establishment for coverage of the Act.
From India, Kannur
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From India, Kannur
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Gratuity Eligibility.pdf
Gratuity eligibility for less than 5 yrs. (4yrs.240days). docx