Is Gratuity Payment Required for Employees Leaving After 4.7 Months Due to Company Changes?

Dear All,

Please help me regarding the eligibility of the employee who has completed approximately 4.7 months in the organization, and the company is now asking them to leave due to the transformation happening in the organization. The employee has been asking for compensation against the gratuity payment on the grounds that they want to serve the remainder of the tenure.

Please suggest if there is any statutory obligation on the part of the company to pay them the gratuity amount.

Thanks and Regards,
Neha

Statutory obligation of the employer to pay gratuity comes only when an employee leaves after serving for at least 5 years. However, there exists a court ruling allowing gratuity for those who have completed 4 years and 240 days in the fifth year.

In your case, the employee is not leaving of his own will, but you are terminating his service, although officially you will collect a resignation letter. If, suppose, he does not resign, then you should proceed with termination. If an employee is terminated, naturally, he should be paid termination compensation, which will again be equal to 15 days' pay for every completed year of service (similar to gratuity). Therefore, it is advisable to pay him gratuity. Furthermore, as pointed out by me, since there exists a court ruling to pay gratuity even if an employee is not eligible as per the Payment of Gratuity Act, it is better to treat his leaving very cordially.

Regards, Madhu.T.K

Dear Kritika,

If you have any new suggestions regarding what I have posted in reply to Nesh's question, please post them. If you are marketing the new website, please do so in a separate forum with a new post. I have also visited the so-called site, but I didn't find anything new compared to CiteHR. Yes, I found some postings that were previously made on CiteHR. I also noticed a PowerPoint presentation on ESI, many provisions of which are outdated without reference to the recent amendments.

While making comments, please be mindful that there are many members on CiteHR who are highly experienced in Personnel Management/HR and may feel offended.

Regards,
Madhu.T.K

As per the Gratuity Act, an employee is eligible for gratuity only upon completion of 5 years. However, if you refer to the definition of continuous service as per Section 2A (subsect 2b), an employee is deemed to be in continuous service if they are put into service for 120 days.

In view of the above, an employee who worked for 120 days during 7 months will then become eligible for Gratuity. For computing the gratuity amount, you have to consider fifteen days' average pay for all completed years of continuous service as per Sect. 4(2). Any excess of six months of service would be considered for computation.

Regards,

P. George

Dear Mahu,

Please explain this termination compensation, as I heard this term for the first time. Kindly provide a detailed explanation, including its derivation and other relevant information.

Regards,
Ranjeet

Dear Ranjit,

Termination compensation means retrenchment compensation payable as per the provisions of the Industrial Disputes Act. Under the ID Act, if an employee who has been in continuous service of at least one year is retrenched, they shall be given compensation equal to 15 days' average pay for every completed year of service.

Dear Mr. George,

Your interpretation of continuous service as per section 2A is correct. However, the reference to continuous service here will be made in order to determine whether an employee has actually been on the payroll for more than 5 years and to ensure whether their service was otherwise interrupted.

Regards,
Madhu.T.K

Dear Madhu,

Thanks. However, for every completed year, it means that we have to pay up to the time that he will reach the age of superannuation. If a person is terminated for reasons of misconduct, do we have to pay termination compensation or not?

Please reply.

Regards,
Ranjeet

Completed years of service will be taken up to the date of leaving for any reason, such as resignation, superannuation, disability, or termination. In the case of an employee's death, the qualifying period of 5 years of continuous service does not apply for the payment of gratuity to the dependents.

If an employee is terminated for misconduct, gratuity will be paid provided the misconduct is not of a severe nature, and the inquiry officer who conducted the domestic inquiry has awarded 'discharge' and not 'dismissal.' However, in the case of dismissal for severe misconduct, no gratuity is paid. Dismissal is only implemented when the misconduct is of a very severe nature.

Regards,
Madhu.T.K

Dear Madhu,

Thank you for your detailed explanation. In the case you mentioned, if a person joined on 01/02/2000 and was terminated on 31st January 2008, we would calculate the retrenchment compensation for 8 years only. Am I correct in this understanding? Please explain the terms "discharge" and "dismissal" in detail, providing examples.

Regards,
Ranjeet

An employee who joined on 1-2-2000 and is leaving on 31-1-08 has 8 years of service. If terminated, he should be given retrenchment compensation for 8 years at 15 days of salary for every completed year of service. This will be in addition to the gratuity payable to him, and the gratuity amount will also be calculated at 15 days for 8 years.

Termination of service for gross negligence and misconduct may lead to dismissal from service. An employee will be dismissed only when the misconduct is of a very severe nature for which the maximum punishment is to be awarded. For example, misbehaving or physically harassing employees of the opposite sex, manhandling others in the office, causing damage to property due to gross negligence, etc. In contrast, only discharge is awarded for absence from duty, sleeping while on duty, misappropriation of cash (depending on the amount involved, dismissal can also be awarded), etc. In the case of discharge, unpaid salary, leave encashment, gratuity, etc., will be given, whereas nothing is paid if he is dismissed.

Regards,

Madhu.T.K

Dear Madhu,

Thanks for your answers. Please also answer my query in the laws section with the name of tax deduction and explanation without a warning letter.

Regards,
Ranjeet

Dear Madhu,

Thanks for your efforts. Please let me know two things -

1. As per the law, when does an employee become eligible for gratuity in terms of years, months, and days? I believe it is 4 years, 10 months, and some days. Please provide the exact duration as I understand it is not a complete 5 years.

2. I am looking to enhance my knowledge of Compensation and Benefits (C&B), labor laws, and taxation. Could you suggest any books where I can find relevant information?

Regards,
Dinesh

As per the Payment of Gratuity Act, it is 5 years. There are cases of refusing gratuity for an employee who had completed 4 years 11 months and 10 days (P. Raghavalu & Sons Vs. Addl. Labour Court, AP). However, once an employee becomes eligible for gratuity after having completed 5 years, any fraction of years in excess of six months shall be treated as one year for calculating the amount of gratuity. Thus, one who leaves after 6 years and seven months shall get gratuity for 7 years.

Similarly, continuous service has been interpreted as uninterrupted service, and one who has worked at least for 240 days (above the ground) or 190 days (below the ground, say mine) shall be treated as having continuous service.

Adopting this view, there seem to be court verdicts allowing an employee to get gratuity provided he had worked for 4 years and 240 days in the fifth year. I do not have any copy of the said verdict. I believe that the Madras High Court and Delhi High Court have made rulings as mentioned above.

Regards,

Madhu.T.K

Dear Madhu,

As you used "superannuation" in your last comment, could you please share with us in detail regarding that?

1. What is superannuation?
2. What is the difference between superannuation and PF?

Thank you.

By superannuation is meant the retirement on attaining the age specified in the standing orders or contract of appointment. It may vary from 55 years of age to 60 years depending upon the company policy. On retirement, whatever benefits are given are called superannuation benefits. It includes a monthly pension, if any, as well. Gratuity is also payable when an employee leaves the organization on attaining the age of superannuation.

PF is different in the sense that it is a fund made by way of contribution by the employee himself with a share of the employer. That will be paid by the Employees Provident Fund Organisation at the time the employee leaves due to any reason, including superannuation. Provident Fund Pension is also paid by the EPFO, though the amount represents the one contributed by the employer.

Regards,
Madhu.T.K

Dear Madhu,

I have a doubt about the retirement age as mentioned by you, "in between 55 to 60." Can you tell me where or in which organization employees retire at 55?

Sanjeev

In Kerala State, there are private sector organizations that follow the state government employees' retirement age, which is 55 years.

Regards,
Madhu.T.K

Dear Madhu,

Thank you for the quick reply. I have a small doubt. I came to know that when two HR people were chatting about superannuation, one of them said, "We are providing our employees both PF and superannuation. It's great." Out of the two HR professionals, one works in retail business (provisionals).

My doubt is, if the above statement is true, how will the bifurcation of salary be done? For example, will we include PF on both sides in CTC by calculating it on the basic at 24%? How will we handle superannuation benefits? Is it only the employer's obligation to pay the employee, like Gratuity?

Please discuss.

I have been in continuous service with an organization for 4 years and 7 months, working 5 days a week. Am I eligible for gratuity?