Gratuity Calculation for 4 Years and 10 Months: Can Anyone Share the Latest Supreme Court Judgment?

Hi all,

Could somebody provide me with the latest Supreme Court judgment regarding the calculation of gratuity, i.e., for 4 years and 10 months?

Thanks in advance.

Dear Govil,

I have also heard that, as per the latest judgment of the honorable Supreme Court, an employee is eligible for gratuity if they have completed 4 years of continuous service and 240 days of continuous working in the 5th year.

This information has been shared in my thread, but I have not been able to verify it until now.

You can read more about the Supreme Court ruling on the Gratuity Act at this link: [SC Ruling on Gratuity Act](https://www.citehr.com/104526-sc-ruling-gratuity-act.html)

Hi Rajeev,

You are right. The case "Mettur Bearsell Ltd Vs Regional Labour Commissioner (Central)" referred to by Mr. Yedhulla Prakash was also reported in 1998 LLR 1072. So far, I have not come across any Apex Court judgment on this.

Thanks & Regards,
Kalyan R

If you are entitled to receive gratuity under the Payment of Gratuity Act of 1972, the next step is to approach the enforcement agency. First, determine the appropriate government body and then file a complaint with your local labor office.

Regards,
R.N.KHOLA

I enclose herewith the judgment of the Madras High Court in favor of paying gratuity to employees who have completed 4 years of continuous service and 240 days in the fifth year for your perusal.

Regards,
Sudipta

Madras High Court Ruling and Apex Court Verdict

The Madras High Court ruling in Mettur Beardsell's case is okay. But where is the Apex Court verdict? In the link provided by Rajeev Verma, the same case is referred to, and the Supreme Court ruling given by Vikramlamhe pertains to Section 25F of the Industrial Disputes Act. Please correct me if I am wrong.

Section 25F vs. Payment of Gratuity

Section 25F is different from the Payment of Gratuity. Retrenchment compensation is available to all employees who have completed at least one year of service, and that one year means 240 days of working.

Regards,
Madhu.T.K

Clarification on Continuous Service for Gratuity Calculation

While agreeing on the completion of 5 years, please clarify the definition of 1 completed year. If I refer to Section 2 A) on continuous service, which reads as follows:

Section 2-A: Continuous Service

For the purposes of this Act:

1. An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service that may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order [* * *] treating the absence as a break in service has been passed in accordance with the standing orders, rules, or regulations governing the employees of the establishment), lay-off, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was...

2. Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer:

(a) For the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:

- 190 days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

- 240 days, in any other case.

What I decipher from the above is that one year would be considered complete in case an employee has continuous service of 240 days if an organization has a 6-day week or 190 days in case of less than 240 days.

Can you shed some light on this, please?

Thanks,

Anjali

I joined Tata Communications Ltd. on 2nd Jan 2007, and my last working day was 05 Aug 2011. I have worked continuously for 4 years and 215 days. During my employment, we worked 5 days a week and had weekends off for 2 days.

Now, am I eligible for the gratuity amount that is included as part of my CTC? I have raised this question multiple times with the Finance team, but they have informed me that according to Tata Trust rules, I must complete a full 5 years to receive my gratuity amount.

If there is a Supreme Court judgment on this matter, wouldn't that be applicable to Tata Trust as well?

Regards

I worked at Tata Communications Ltd from 02 Jan 2007 until 05 Aug 2011, which totals 4 years and 215 days. The company operated on a 5-day workweek, and according to the Supreme Court (SC) order, 4 years and 190 days would qualify for gratuity.

In this scenario, would I be eligible for gratuity? The finance team claims that, based on Tata Trust rules, I must complete 5 years. Does the SC order not apply to trusts like Tata?

On the other hand, I am currently employed at an MNC in Hyderabad. They consider 4 years and 190 days as the period eligible for gratuity payment and have processed it. Why then is my former employer denying this by stating it doesn't apply to Tata Trust?

I need your assistance to proceed with this matter.

Thank you.

Regards

Gratuity Act 1972: Understanding Eligibility and Calculation

Kindly find attached the Bare Act of the Gratuity Act 1972. The extract of Section 2A is given below:

Also, I have attached the Gratuity Act 1972 Bare Act. Therefore, it is very clear that the calculation is for 4 years and 240 days.

All organizations, irrespective of their own trust, have to follow the rules. Their rules can differ if they are more beneficial to the employee than the present act.

Gratuity Eligibility as per Gratuity Act 1972

The gratuity eligibility as per the Gratuity Act 1972 is 5 years of continuous service. Subsection (2) of Section 4 is for the calculation of gratuity and not for the eligibility of gratuity.

However, as per the judgment of the Supreme Court, an employee is eligible for gratuity if they have completed 4 years of continuous service and 240 days of continuous working in the 5th year. On the day when they complete their 240 days in the 5th year, they will be eligible for gratuity.

The judgment of the Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal, [(1980) (4) S.C.C.433)], states that it is enough that an employee has a service of 240 days in the preceding 12 months, and it is not necessary that they should have completed one whole year's service. As the definition of continuous service in the Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principle can be adopted under the act also. Hence, an employee rendering service of 4 years, 10 months, and 11 days is considered to have completed 5 years of continuous service under Section 4(2) and thereby is eligible for gratuity.

Now, almost all organizations are paying gratuity if an employee has completed 4 years of continuous service and 240 days of continuous working in the 5th year.

Regards,
Ashutosh Thakre

Hi Ashutosh Thakre,

Thank you for your detailed information. So, if the organization is working 5 days a week, can the 5th year be considered as 190 days? For example, would it be 4 years and 190 days if the company follows a 5-day week and 4 years and 240 days when the company follows a 6-day week?

I appreciate your response.

Gratuity Calculation for Establishments Working 5 Days a Week

For an establishment working 5 days a week, 240 days shall be taken as 190 days. This is as per the Gratuity Act itself. The eligibility service remains 5 years from the date of joining, although there are court verdicts interpreting the requirement of 240 days or 190 days, as the case may be. The mandatory days for deciding continuous service as one year of service is provided the employee has already completed 4 years in the preceding service period.

A similar ruling has come from the Kerala High Court, stating that an employee who has worked for 4 years and 240 days (190 days for establishments working 5 days a week) is eligible for gratuity, considering that 240/190 days will constitute one year (Sreeja Vs. Regional Labour Commissioner [2015 LLR826]).

Ashutosh: Please share the Supreme Court ruling you have mentioned in your post.

Regards,
Madhu.T.K

Dear Ashutosh Thakre ji,
The Supreme Court judgment that you have quoted does not pertain to the Gratuity Act but rather to the provisions under the ID Act.

In this thread four years ago, Mr. Madhu and Rajanassociates shared their opinions. Mr. Madhu is a Super Moderator of our forum with vast experience in Industrial Relations. Rajanassociates are legal counsels/advocates practicing in the field of labor laws for a considerable period. However, you held a different opinion from theirs.

It is acceptable to disagree with someone, but it should be done with thorough knowledge.

A Simple Question
I have a simple question for you: If there was a Supreme Court judgment on this subject in 1980, how did the Madras High Court and Kerala High Court admit similar cases after 1980?

Our concern is with the law and not with what is commonly practiced. Practices are adopted by people who presume that what they know reflects the law. In a recent discussion, an HR manager stated that gratuity is deducted from the salary and given later upon separation.

I apologize for my straightforwardness. I couldn't hold back my thoughts.

Regards

Dear All,

The extract of the case is attached herewith. The Supreme Court ruling I shall update by this coming Monday.

Regards,
Ashutosh Thakre

Thank you for the frank reply. I understand that the case was under the ID ACT, but it was regarding gratuity. The Supreme Court has clearly stated that the definition of continuous service in the Industrial Dispute Act and the Payment of Gratuity Act are synonymous. Therefore, the same principle can be applied under this act as well. An employee who has served for 4 years, 10 months, and 11 days is considered to have completed 5 years of continuous service under sec. 4(2) and is thus eligible for gratuity.

I hope this clarifies your doubts.

Regards,
Ashutosh Thakre

Dear Learned Members of this Forum,

To conclude this subject, please find attached a judgment of the Hon'ble Supreme Court in the case of Grand Kakatiya Sheraton Hotel & Towers Employees & Workers Union v. Srinivasa Resorts Ltd. & Ors., delivered on 27.02.2009.

The Hon'ble Supreme Court in this case upheld the judgment of the Andhra Pradesh High Court, which had struck down as unconstitutional the provisions of the Andhra Pradesh Shops and Establishments Act. This Act had made gratuity payable even to employees who had not completed 5 years of service, as per the Payment of Gratuity Act, 1972.

Given below is some text verbatim from page 11 of the Judgment:

"It is already held by this Court time and again that the concept of gratuity as conceived in the Payment of Gratuity Act and even earlier in labour jurisprudence is that gratuity is a reward for long and continuous service. It is for the first time by that Act, a worker or an employee was made entitled to the gratuity by his rendering continuous service for five years. If this is so, then providing only one year for entitlement to get the gratuity, is certainly unreasonable."

In light of the above, my humble request to the learned members of this forum is to conclude this subject. No further contribution from my side will be made on this topic unless someone raises a question of law.

Regards

Clarification on Court's Order Regarding Continuous Service

My humble request is to please clarify where in the attached case the court ordered a continuous 5 years of working, which is not equivalent to 4 years and 240 days. The entire case is viewed from a different angle. The discussion we are all trying to understand is whether 5 continuous years of service are equivalent to 4 years, 240 days, or 190 days.

Regarding your question about why the court admitted the cases if they had a verdict before, I am very sorry, but not being a lawyer, I shall not be able to comment on the same.

Regards,
Ashutosh Thakre

From the above discussions, I understand that if an organization is working 6 days a week, in that case, 240 days of continuous service in the 5th year are sufficient to be considered as a complete year of service for the payment of gratuity, which requires 5 years of continuous service. The 240 days of continuous service in the 5th year mentioned here are completed in 10 months and 11 days (315 days = 45 weeks) in the 5th year of service.

Can someone explain how 240 days of continuous service gets completed in 10 months and 11 days?

Regards,
Harsh Gupta

Understanding the 240-Day Rule for Gratuity

I did not quite understand your query. If your concern is about the 240 days over a period of 10 months and 11 days, I would like to clarify that 240 days do not represent the days physically present but rather the days for which wages have been paid. This should include all holidays, weekly off days, and paid leave days.

There have been discussions over the issue of 240 days in the 5th year as a qualifying period for gratuity for a long time, and the situation remains the same. Still, if you follow the Payment of Gratuity Act, the gratuity qualifying service is 5 years. It is true that to be considered as continuous service for the purpose of gratuity, a period of 12 months should have at least 240 paid days. Many of us believe that if you have 240 paid days in the 5th year, you will be eligible for gratuity because one year is considered as 240 days. The two judgments that many of us refer to have also interpreted the provision of one year of service as 240 days.

Regards, Madhu T K

Supreme Court Judgment on Gratuity Eligibility

In one of the above posts, the following point has been mentioned with reference to the judgment of the Supreme Court: "The judgment of the Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal, [(1980) (4) S.C.C.433)], states that it is enough for an employee to have a service of 240 days in the preceding 12 months, and it is not necessary to have completed one whole year's service. As the definition of continuous service in the Industrial Dispute Act and the Payment of Gratuity Act are synonymous, the same principle can be adopted under the act. Hence, an employee rendering service of 4 years, 10 months, and 11 days is considered to have completed 5 years of continuous service under sec.4(2) and thereby is eligible for gratuity."

Query on Gratuity Eligibility

My query is related to the requirement of the service period for eligibility for gratuity. My organization does not work on the 2nd and 4th Saturday of every month. Hence, my case falls between 5-day working and 6-day working. My service period in the organization is 4 years and 244 days as of the last date of my services. Will I be eligible for receiving the gratuity payment from my organization?

Regards

Gratuity Eligibility Under the Payment of Gratuity Act

As already pointed out, even when the Madras High Court view was in existence, many authorities under the Payment of Gratuity Act had refused to grant gratuity, saying that there is no Supreme Court view on this. Since the Act makes it very clear that completion of 5 years is mandatory for being eligible for gratuity, an employee who has not completed 5 years but has a service of 240 days in the fifth year is not eligible to get gratuity. When the Kerala High Court verdict came, the same was again opened, and the appropriate authorities in Kerala started ordering payment of gratuity to persons who have not completed 5 years of service but have had 4 years and 240 days of service.

Retrenchment Compensation vs. Gratuity

The issue of retrenchment compensation is different. In order to be eligible to get retrenchment compensation, just a service of one year is sufficient. In the case of gratuity, it is not one year but 5 years. It is true that 240 days of service constitute one year under both the Act. It is so in the case of eligibility for leave under the Factories Act and Plantations Labour Act.

Conditions for Gratuity Eligibility

For eligibility for gratuity, one should have worked for not less than 5 years continuously, with each year having at least 240 days (paid days). If you have worked for more than 5 years, say, 8 years, but in between there are, say, four years with service of fewer than 240 days, the employee will not get gratuity. In this context, we should also consider that if the employee has not "worked" for 240 days but was "employed" for 240 days, he will get gratuity. And if an employee "employed" has remained absent without leave and as a result of his absence, he could not work for 240 days, then he will not get gratuity. These equations are true in the case of temporary workers who are not "employed" continuously on the rolls of the employer but are called or engaged to "work" whenever required.

Legal Interpretations and Actions

Therefore, the first qualifying parameter is 5 years of service, and the second thing is that each year should have 240 days of paid days. When the first milestone is not reached, naturally, he will disqualify from gratuity. At the same time, Madras High Court and Kerala High Court, having interpreted the Gratuity Act to make it available to persons who were not employed for 5 years but were employed for 4 years and 240 days in the 5th year, we can also follow it. But, if your employer rejects saying that you have not completed 5 years and then the appropriate authority, i.e., the Labour Officer, supports it, you will have no other choice but to prefer a complaint interpreting the law as above and quoting the above two verdicts.

Regards, Madhu T K

Dear Ramesh ji,

I welcome your first-ever post on this forum. I am reproducing section 4(2) of the POG Act verbatim as follows:

"Sec 4(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned."

What does "part thereof in excess of six months" mean? According to this, more than six months are to be considered a full year.

Dear All, while working with a private company, it was a practice that even for eligible permanent workers who have rendered service for more than 5 years, only those years in which the worker was physically present for 240 days were considered. The management's interpretation was that gratuity is payable according to Section 2 A (2) (a) (ii) of the Payment of Gratuity Act. An extract of the clause is stated below.

Continuous service

[2A. Continuous service.—For the purposes of this Act,—
(1) An employee shall be said to be in continuous service...
(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—
(a) For the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than—
(i) One hundred and ninety days...
(ii) Two hundred and forty days, in any other case.]

After referencing the provisions of the Act, some case laws, and discussions with seniors, my assumption is that the above clause may be applicable to Badali/Temporary workers who are working in the absence of a permanent worker for the time being.

Query on gratuity payment eligibility

My query is: Is it legal and proper to apply the above clause of 240 days actually worked each year for the eligibility of gratuity payment to permanent employees? Is there any case law in which the Hon'ble Court may have explained in detail or made an interpretation that the above clause is not applicable for the gratuity payment of permanent workers?

Regards,
Shaikh I.Y.
Manager HR.

Understanding the 240-Day Rule for Gratuity

Very simple, you may just read 240 days as 240 paid days. That means these 240 days should include all weekly off days, paid leaves, and holidays. Obviously, permanent employees will be paid for 30/31 days a month. They will be eligible for holidays with pay and will also be given paid leaves like CL or PL. In the case of female employees, maternity leave days are also included. Therefore, it is better to consider 240 as 240 paid days. Even for a permanent worker/employee who fails to meet this 240-day target due to regular absenteeism or being absent without leave, gratuity shall be refused for those years where the qualifying 240 paid days are not met.

I think until the issue is clear, as per the provisions of the Act, in the case of permanent workers where their total paid days are below 240 days due to absenteeism, management must conduct a domestic enquiry. If the charges of absenteeism leveled against the worker are proven, the decision to break the services must be taken. Only then the particular year in which the worker has not received 240 paid days cannot be considered for gratuity.

Shaikh.I.Y. Manager HR.

Gratuity Calculation for Completed Years of Service

Employee has worked for 8 years, 6 months, and 27 days. What would be the completed years, is it 8 years or 9 years? I have gone through this forum where your team is referring to section 4(2) of the Payment of Gratuity Act, 1972 for completed years of service. However, if we go by section 4(1) of the Payment of Gratuity Act, 1972, it is specifically mentioned that "payable to the employee after he has rendered continuous service," and there is a definition given for continuous service in the act. So accordingly, an employee has to complete 240 days to consider it a completed year in the gratuity calculation.

Clarification on Section 4(1) and 4(2) of the Payment of Gratuity Act, 1972

If the employee is not fulfilling the requirement given in section 4(1) of the Payment of Gratuity Act, 1972, what is the logic of section 4(2) of the Payment of Gratuity Act, 1972?

Can anyone please provide an explanation of the above points? If anyone can provide a case study, court ruling, or judgment related to this matter, it would be greatly appreciated.

Gratuity Calculation and Eligibility

Section 4(2) is a directive for calculating gratuity. Once an employee becomes eligible for gratuity, while calculating the year of service, a fraction of a year exceeding 6 months should be rounded off to one year. That means, in your example, if you have 8 years, 6 months, and 27 days of service, the eligible service will be 9 years.

Understanding the 240 Days Requirement

The issue of 240 days has nothing to do with the above. 240 days is the bare minimum paid days required for an employee to become eligible for gratuity. That means if you have lots of unpaid leaves in each year, as a result of which you fail to get 240 days in a year, such years will not be counted for gratuity calculation. Continuing the above example, say, out of 8 years, there was a year, say 2017, in which you did not attend work for a few months but could attend only for 220 days in total, and the absence remained unregularized. Then that year will not be taken for gratuity calculation. At that time, you cannot say that you had worked for more than six months in that year, 2017; you should get the benefit of one year of gratuity. This fraction matter appears only in the last year and not in between the service.