Is Our Employee Eligible for Gratuity Payment After Resignation? Seeking Advice

One of Employee joined our organization on 1st April 2004 on probation and Confirmed on 1st Oct.2005, now he is given resignation letter on 1st March 2009 with mentioned consider his one month notice period as per terms & condition of appointment letter. The same resignation letter is accepted by management and relieved him with immediate effect ie.on 2nd March 2009.

In his Appointment letter mentioned clause : - On confirmation, your services can be terminated by one month's notice or wages/salary in lieu of notice. Similarly, you can relinquish your services by giving one month's notice in writing or one month's wages/salary in lieu of notice.

Till date we have not prepare his full and final dues. My question is that whether he is eligible for Gratuity Payment?

Kindly give your suggestion Please.

Regards

Abhay

Dear,

In my view, he has completed five years of service as he resigned on 01 March with a notice period. Since you have relieved him immediately, it means you have to pay him salary until 31 March.

Thank you.
J.S. Malik

Dear Abhay,

If your management had relieved the employee despite his willingness to serve the notice period, then you have to pay his March month's salary.

Dear Malik,

It has been clearly mentioned that the employee put in his resignation on March 1st, 2009. My question is, what would be the duration of the employee's service in the organization? Is it 5 years and 9 months (2nd March 2009 - 1st April 2004) or 4 years and 4 months (2nd March 2009 - 1st Oct 2005)?

Dear Abhay,

If the employee's service is 5 years and 9 months, you have to pay the gratuity irrespective of his resignation date. However, if it is 4 years and 4 months, you need not pay the gratuity. Please clarify if you have to include the March month salary for the calculation of gratuity (as the employee might have had a salary hike).

Dear Abhay,

In our opinion, the concerned employee has become eligible for gratuity as he has given notice of one month. This type of action regarding acceptance of resignation at your level cannot be stated to be justified in any manner. Moreover, according to the judgment of the Hon'ble Madras High Court, he is also eligible for payment of gratuity amount in his full and final payment as he has completed 240 days working in the fifth year, despite your acceptance of resignation with immediate effect.

Submitted as requested.

Regards,
R N Khola
Sr. Associate

Hi,

I am working with an organization since May 25, 2004. I am about to complete 5 years of service here; currently, I am at 4 years and 10 months. Due to the current market situation (recession), I am suspecting that I might be laid off before completing 5 years of service. Even if it is a layoff on paper, it will be shown as if I have resigned myself (this has happened to a few other employees already). I will be asked to resign, and the resignation will be accepted immediately. Even leave encashment may not be done since it will be deducted assuming I have not served the notice period. The employee has no choice but to agree and resign to put his/her records straight with the employer so that he/she doesn't face a problem with the next organization regarding experience verification. My question here is: If I am asked to resign after completing 4 years and 10 months and if I resign mentioning that I am ready to serve a 2-month notice, however, if that resignation is accepted with immediate effect, am I eligible to receive gratuity as per the Payment of Gratuity Act? Please help me understand this with your expert opinion. Thanks in anticipation.

Thanks,

Pratibha

4 years and 10 months - you cannot claim gratuity as it has to be 5 years completed from your date of joining - whether on probation or confirmed from day one. It's clearly mentioned in the law that more than 6 months should be rounded off to 1 year, but it's only for the purpose of paying gratuity and not for the purpose of eligibility. Hence, you must complete 5 years of regular service.

Dear Mr. Abhay,

He must have completed five years of continuous service. Only then will he be eligible for Gratuity. You may calculate the number of years of service from his date of appointment.

MANOKAVIN

If you have not completed 5 years of service, you should forget about gratuity. Since you have already completed 4 years and 10 months, it is just a matter of 2 months. I believe you are still in the same job and looking for better options. Now the choice is yours.

Hi All,

As per the act, the employee is eligible for gratuity if he/she has worked for 240 days in all the 5 years without any break in the service. Thus, Pratibha, you'll have to calculate how many days you have worked in the 5th year that will give you an idea of whether you are eligible for gratuity or not.

Dear Friends,

Many times we forget this 240-day clause. Thanks!!

Regards,
Dhoop

Hi, I am completing my 5 years of job in the notice period. Do I still complete the clause of 240 days for gratuity payment?

---

Hi,

I am completing my 5 years of job in the notice period. Do I still complete the clause of 240 days for gratuity payment?

Whether he has accepted the relieving order issued by you dated 02.03.2009 and in that case from the "date of joining" (01.04.2004) to the "date of relieving" (02.03.2009), he has completed 4 years and 11 months. That way he is not eligible to receive gratuity as per the act, which requires a minimum of 5 years of continuous service.

Hope the clarification will suffice.

C.N. Jayaanandh
9840928274

Hi, as per my calculation, it is - 4 years and 11 months, not 5 years. Furthermore, the law states that in a non-seasonal establishment, if an individual works for less than 6 days in a week, they are deemed to have rendered continuous service for 1 year or 6 months if they have actually worked for at least 190 days in the last 12 months or 95 days in the last 6 months (deemed to be considered continuous service). Therefore, if this condition is satisfied, the individual should be entitled to Gratuity.

I think yes... If so, notice period is not an issue until you are working in that company. Until the last day, you are an employee.

Hi,

It has been clearly stated that one needs to complete 5 years and one needs to bear in mind the 240-day clause. Further, one needs to calculate with the latest drawn salary.

Regards,
Karuuna

So please go through the HR manual or the appointment and do the needful as soon as possible.

Thank you all very much for your quick reply. It is really helpful. However, if you notice my original post, the question here is I am not resigning out of my own wish. I have completed 4 years and 10 months, and now the company is asking me to resign. In this case, I am wondering if I cannot refuse to resign, will I get gratuity.

Thanks, Pratibha

Dear All,

As per the act, the employee is eligible for gratuity if he/she has worked for 240 days in all the 5 years without any break in service.

Mr. Dhoop and R. N. Khola are correct. If an employee completes 4 years of service and works for 240 days in the 5th year, he is eligible for gratuity in full.

Hi Abhay,

In my opinion, no, the employee is not eligible for payment of gratuity because he has not completed five years of service. Notice pay for one month can't be a criterion. Secondly, he has not completed 240 days of service during his fifth year.

Sumit

Even if you have not completed five years, you can claim the gratuity benefits as the company is laying you off. You can refer to the Jan 2009 Labour Law Reporter in this regard.

Narinder Rathore

The concerned person has not completed actual 5 years of service. Only in the case of death, this clause of completion of 5 years is not applicable. In that case, he is entitled to pro-rata gratuity.

In the given case, the employee wants to serve a complete 5 years, but as per your letter, you have immediately accepted the resignation. This action may invite one month notice pay by the employer. In one of the judgments under this scenario, the employee is entitled to gratuity. At present, you may ignore the payment of gratuity, but you must pay one month notice pay to strengthen your case.

Himanshu

Dear Matrix,

Yes, you are eligible for a gratuity amount. The formula to calculate gratuity is: Basic salary * 15/26 * No. of Years of Service. Therefore, the basic salary will be the last drawn basic salary, and the person should complete 5 years of continuous service.

Regards,
Pooja

Dear all,

Regarding the first query from Mr. Abhay Joshi, I agree with the comments of Mr. P.N. Khola, Sr. Associate of Skylark Associates. During the final (5th year), if the employee had served 240 days of service, he is eligible for payment of Gratuity.

As for the query from Ms. Pratiba, I tend to agree with Mr. Dhoop. My advice to Ms. Pratiba is not to resign. If the company is paying one month's notice pay in lieu of one month service, that itself will be an adequate cause to prove the malafide intentions of the management of the company in perverting to deny the rightful claims of the employees.

A. Irudayam
Advocate and HR Consultant
99406 86632

Dear Mr. Abhay,

Generally, when an employee joins a company, we consider the first day as the date of joining, even if they are in the probation period (6 months or 3 months). You mentioned the date of joining in the appointment or experience letter as 1st April 2004, so his service is calculated from 1st. In this case, he resigned on 1st March 2009. If he had resigned on 31st March 2009, he would have completed 5 years of service. Therefore, as he has not completed his 5 years of service, if he gives one month's notice period or one month's salary, then he is eligible for Gratuity.

In this case, even though he has not completed 5 years, he can still receive gratuity as per the Gratuity Act of 1972. If he had completed 5 years of service, the amount would be calculated as follows: Amount = (Basic Salary + D.A) * (15/26) * number of years. However, since he has not completed 5 years, the amount would be calculated as follows: Amount = (Basic + D.A) * (1/2) * number of years. In this case, the number of years is only 4.

For further reference, please visit: http://profit.ndtv.com/Calculators/gratuity.htm

Dear Pooja,

Thank you for the reply. Just to clarify and seek feedback about the eligibility for gratuity: I joined my present company on 5th June 2004 and am currently on the notice period, with my last day in the company set for 7th June 2009 (technically completing 5 years of continuous service). My confusion now pertains to the 240 days of work in a year requirement. Can I still be eligible for Gratuity?

Comments from all are welcome.

Thanks in advance.

Dear Matrix,

Please go through Section 2A of the Payment of Gratuity Act, 1972. You will find the answer.

Regards,
R.N. Khola
Sr. Associate
Skylark Associates, Gurgaon

Dear Abhay,

Gratuity accrues to an employee from the date of his joining your organization irrespective of his confirmation date and is payable within 30 days from the date it becomes payable.

The management has its prerogative of releasing / short-changing an employee any time it deems fit during the notice period. However, it is obligated to pay his "full salary + benefits (+ perks, if any) for the full notice period since as per the terms & conditions of his employment, he has shown his willingness to serve the Company for the one month's notice period. Law, strictly speaking, will view him to be working during his notice period.

The only exception will be in case the employer can justify the short-change in notice period and immediate relieving on some genuine & adequate reasons showing that his continuance is detrimental and will hinder business (usually difficult to prove unless blatant)

As regards Gratuity eligibility, he will be better served in completing 5 years of continuous service as under the Act. If he is forced to leave by an immediate relieving, on paper he is not eligible for Gratuity. However, law will view it otherwise in case of a litigation given that he was forced to exit and his Gratuity stands payable.

In simple words, if he goes for a litigation, he may be restored his Gratuity if malafide intentions of the employer are established. If not, the employer may get away. This is indeed a tricky technical issue.

Legally, given the circumstances, it may be held that a forced-resignation/forced early cessation of service without good reasons will tantamount to it being retrenchment of sorts and, therefore, it is immaterial that the termination is ocassioned by the need to discharge surplus manpower.

It has been held by the Supreme Court that retrenchment of employees will fall within the scope of Section 4(1) of the Payment of Gratuity Act and a retrenched employee will be entitled to Gratuity in such a borderline case.

Generally, however, it has been established that an employee satisfying conditions of length of service and salary limit will be entitled to gratuity even if he is resigning from service as also confirmed by the Delhi High Court (Texmaco Ltd. vs Ram Dhan 1992 LLR 369 (Del HC). Gratuity payable cannot even be stalled under SICA or financial difficulties of the employer.

Do note that the Madras HC has held that an employee rendering continuous service for a period of 240 days in a year. i.e. the 5th year subsequent to first 4 years should be deemed to have completed continuous service of 5 years and is entitled to Gratuity. By this analogy, your this employee is eligible for Gratuity. The Madras HC also distinguished the earlier ruling of Andhra Pradesh High Court wherein it was held that an employee who has worked for 4 years and 11 months and 10 days having not completed five years of service will not be entitled to Gratuity (Mettur Bearsell Ltd (represented by its Personnel Manager, Madras vs Regional Labour Commissioner (Central Authority under the Payment of Gratuity Act, 1972), Madras, 1998 LLR 1072 (Mad HC)

Given the argument, it will be prudent to pay Gratuity to this employee.

Rahul
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09968270580

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Eligibility for Gratuity Payment

One of Employee joined our organization on 1st April 2004 on probation and Confirmed on 1st Oct.2005, now he is given resignation letter on 1st March 2009 with mentioned consider his one month notice period as per terms & condition of appointment letter. The same resignation letter is accepted by management and relieved him with immediate effect ie.on 2nd March 2009.

In his Appointment letter mentioned clause : - On confirmation, your services can be terminated by one month's notice or wages/salary in lieu of notice. Similarly, you can relinquish your services by giving one month's notice in writing or one month's wages/salary in lieu of notice.

Till date we have not prepare his full and final dues. My question is that whether he is eligible for Gratuity Payment?

Kindly give your suggestion Please.

Regards

Abhay

Dear Mr. Khola,

Thank you for the reply. I have read section 2A of the Payment of Gratuity Act, 1972, and from the act, it seems that I will be eligible for gratuity. Please correct me if I have misunderstood.

Thanks and Regards