Gratuity Eligibility: How to Calculate for 4.5 and 5.5 Years of Service?

Dear Friends,

Please send the calculation of gratuity. In case an employee serves for 4 years and 6 months, is he eligible for gratuity or not? Also, if an employee serves for 5 years and 6 months, how many years should be calculated for gratuity?

Kindly provide the above calculations with an attachment file.

Thank you,
PEDDI RAJU

In order to be eligible for gratuity, an employee has to render at least 5 years of service with an employer. This service is counted from the date of joining. Though there are some controversies around the eligibility of gratuity spun around a court verdict which allows an employee to get gratuity provided he has worked for 4 years and 240 days in the fifth year, the text of the verdict is not available right now with me. Therefore, I prefer to take the available rules which make it mandatory that gratuity accrues only when an employee leaves after completing 5 years of service. (The case of the death of an employee is different wherein the dependent will get gratuity even if the deceased employee had not put in sufficient years of service).

As such, one who has worked for 4 years and 6 months will not get gratuity. For the calculation of the amount of gratuity, a fraction of a year in excess of six months will be counted as one year. That means if one has 5 years and seven months of service, the fraction of the year, that is, 7 months, will be counted as one year as the fraction exceeds six months and therefore he will get gratuity for 6 years even though he had worked only for 5 years + 7 months. Five years and six months will not entitle to 6 years of gratuity, whereas 5 years, 6 months, and one day will attract 6 years of gratuity.

However, if you see things practically, the law is not against anything that allows any employee to benefit, and therefore, nobody will question an employer's action of giving 6 years of gratuity to one who had worked exactly for 5 years and six months. Similarly, if the employer thinks that an employee who had worked for 4 years and six months should be allowed gratuity, he can go ahead with his good decision.

Regards,
Madhu.T.K

Dear Peedi,

You can go through the below link to understand the Gratuity calculation and about eligibility. We still have a lot of confusion.

https://www.citehr.com/112030-help-matter-gratuity.html

Regards,
Amith R.

Dear Friend,

Under Section 4 of the Payment of Gratuity Act - 1972 Rules, any employee who has rendered 5 years of continuous service at the time of leaving the organization, retirement, voluntary retirement, or reaching the age of superannuation is eligible to receive gratuity under the provisions of the said Act. The eligibility criteria are not required in the case of death or permanent total disablement.

"Continuous service" means the employee must complete 240 days of work in a calendar year. In response to your queries:
(a) If the employee completes 4 years and 6 months of service, they are not eligible for gratuity.
(b) If the employee completes more than 5 years and 6 months of service, gratuity is payable for 6 years.

Computation of Gratuity: For every completed year of continuous service or part thereof in excess of six months, gratuity is payable at the rate of 15 days' wages.

Gratuity Payment Formula: (Basic + D.A) divided by 26 multiplied by 15 days multiplied by the number of years of service.

This information is provided for your reference.

Regards,
P.V. Rama Rao