Gratuity Eligibility: Does Termination Before 5 Years Affect Your Rights?

Dear all,

Greetings,

Please advise whether a person who has been terminated before completing 5 years of service would still be entitled to gratuity. The termination was initiated by the company, leading to the individual's inability to fulfill the 5-year tenure.

Regards,
Jyoti Negi

Dear all,

Greetings.

Please advise if a person who has been terminated before completing 5 years of service will be entitled to gratuity since he could not fulfill the 5-year tenure due to termination by the company.

Regards,
Jyoti Negi

Dear Madam,

The Gratuity Act states that a person must work continuously for 5 years and complete 240 days each year. If the individual has not completed 5 years and 240 days each year, then they are not eligible for gratuity even if their services are terminated.

I hope this helps.

Best regards

Dear Madam,

The Gratuity Act states that a person has to work continuously for 5 years and complete 240 days each year. If a person has not completed 5 years of service and has not completed 240 days of work each year, then they are not eligible for gratuity even if their services are terminated.

Dear Jyothi,

Although the Payment of Gratuity Act states that an employee becomes eligible for gratuity only after completing five years of continuous service, there have been judgments allowing gratuity for employees who have completed four years and 240 days in the fifth year. If your employee has met this criterion of four years and 240 days in the fifth year, they are entitled to claim gratuity.

"Continuous service" for gratuity purposes refers to a total of 240 working days in a 12-month period for employees above ground and 190 days in a 12-month period for employees below ground (mines).

Regards,
Madhu.T.K

Dear Jyoti,

I completely agree with Mr. Madhu T.K. According to your posted question, he can claim gratuity because the company terminated their employee. Please check that he has been present for 240 days in a period of 12 months, and the same continues for four years.

Amit Sharma
Asst. Manager
HR & Compliance
Ph: 09729355041

Dear Mr. Madhu,

Could you please provide us with the details of the judgment allowing gratuity to employees who have completed four years and 240 days in the fifth year? It would be greatly appreciated if you could elaborate on this.

Regards,
Suresh

Hi,

Please check whether this person has completed 240 days in the 5th year or not. He is eligible for gratuity for 5 years if he has completed 240 days of service in the 5th year.

Srinivas

Hi,

If the employee didn't complete five years of service, he is not entitled to the payment of gratuity.

Thanks and regards,
Sumit Kumar Saxena
9899669071, 0120-4131277

Please find the judgment attached.

The gratuity is calculated on the basis of the number of years of service, and it will be equal to 15 days' salary (Basic + DA) last drawn for every completed year of service. If there is a fraction of a year of more than six months, the same shall be treated as one year, and any fraction less than six months shall be ignored. For determining the daily average of salary, the monthly salary shall be divided by 26. The maximum gratuity payable as per the Payment of Gratuity Act is Rs 3,50,000. This limit is under revision.

Regards,
Madhu.T.K

It is Basic Pay + DA. Example: Basic pay: 5000 DA: 2000 Total: 7000 Length of Service: 7 years. The formula is last Drawn Wages/26*15*years of service. In the above example, Gratuity will be calculated as under: 7000/26*15*7 = Rs.28, 269/-. The maximum limit for payment of Gratuity is fixed at Rs.3.5 lacs. Hope this answers your query. Cheers!!! Vasant Nair

Hi ,
Please note that the person will not be eligible to avail gratuity since he has not completed 5 years of continous service. Even if he did , when person is terminated the employer has the right to forfeit his gratuity wholly or partially .
The respective sections are given below.
Section: 4
Payment of gratuity.
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
6) Notwithstanding anything contained in sub-section (1), -
(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.
(b) the gratuity payable to an employee may be wholly or partially forfeited]¬ -
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
Hope this helps
Kirti

Please clarify whether gratuity is payable in the following case:

First Year - 240 days completed
Second Year - 240 days completed
Third year - 240 days NOT completed
Fourth year - 240 days completed
Fifth year - 240 days completed
Sixth year - 240 days completed

Dear all,

I learned the Gratuity calculation from one of our Cite HR friends, so I'm just explaining that again. "Gratuity is paid for Good Gratitude."

1. If an employee has completed 5 years of continuous service in an establishment, he is eligible for Gratuity.
2. Entitlement - 15 days' salary for each completed year of service or part thereof.
3. Salary = Basic Salary + D.A.
4. As per the Payment of Gratuity Act, 1972, the amount of gratuity should be calculated as follows:
Formula: Salary x number of completed years of service x 15/26

For example:
Salary = Rs. 5000 (Basic + D.A.)
Period of service: 6 years 6 months 15 days
Completed years of service: 7 years
Gratuity = Rs. 5000 x 7 x 15/26 = Rs. 20,192/

Thank you.

Dear Kirti,

Forfeiture of gratuity is possible only when an employee is dismissed from service for gross negligence or for such gross misconduct involving moral turpitude. Though the terminology used in the Payment of Gratuity Act is termination, an employee does not become ineligible for gratuity if his service is terminated for any other reasons as provided in the Act, like causing damage to property, severe misconduct, etc.

Regards,
Madhu T.K

Sir,

The attached file is corrupted. Can you please send the file again.

Regards,

Anshu Kumari
HR Executive

Gratuity will be given to the persons who completed 5 years of service; in addition, he/she should work for at least 240 days (190 days in case of working below ground) each year.

Hi, first of all, continuous service of 5 years is a must for gratuity.

Secondly, regarding Madhu's opinion, I would like to mention that in a particular case, the Madras High Court has held that an employee, regarding continuous service for a period of 240 days in a year, is deemed to have continuous service for 1 year as stipulated by Section 2A of the Act. However, the High Court distinguished the earlier ruling of the Andhra Pradesh High Court where it was held that an employee who has worked for 4 years, 11 months, and 10 days, without completing 5 years of service, will not be entitled to gratuity. For reference, please see Mettur Beardsell Ltd Vs Regional Labour Commissioner, Madras, 1998 LLR 1072.

Experts, I need your opinion.

Ratikanta Rath (HR Manager)

Dear Jyoti,

As per The Gratuity Act, any person who dies before completing his 5-year tenure with a company, his nominee is entitled to receive the gratuity. However, in the case of termination before 5 years, he will not be entitled to gratuity.

Best Regards,
Shikha Agarwal

Gratuity cannot be paid to a person who is terminated before five years of continuous service. Gratuity is gratification, not an award.

Hi, Madhu T.K. is absolutely correct. If he has completed 240 days in the fifth year, he is eligible for gratuity.

The formula for the calculation of Gratuity is:

Basic salary + DA * 15 days * Number of years of service / 26 days.

Regards,
Prakash

Please verify the following:

In the third year that the employee did NOT complete 240 days of continuous employment, was the shortfall due to reasons which amount to a break in service? In this case, yes, he would be entitled to Gratuity after all, he has completed more than five years of employment.

Vasant Nair

Hi,

Gratuity is payable on rendering continuous service not less than five years. – Sec.4(1)

The provisions of this sec. must be read with Sec2-A(2.a-ii) , which reads as follows:-

Where an employee(………………..)is not in cont. service…………………….for any period of one year or six months, he shall be deemed to be in cont. service under the employer –

a) for the said period of one year ,…………………………………..,has actually worked under the employer for not less than –

i)……………………………………………………………………………………………………………………………… ……

ii) two hundred and forty days , in any other case.

Conclusion : an employee rendering cont. service of 4 years and 11 months is entitled for Gratuity.

Case Law : This interpretation finds support in the following judgement.

Gist : In this case , the employee has served for 4yrs , 10 months and 18 days, which is definitely more than 240 days, He has ,therefore, put in 5 years service and is entitled to Gratuity.

- Mettur Breadsell Ltd. V. Reg. Lab. Com. , 1998(3) LLN 414 (Madras H.C.)

I.N.JHA

The formula for gratuity is:
Last drawn Basic * 15/26 * Number of Years of Service.

Some companies pay gratuity based on 30 days instead of 15; it varies from company to company.

Shikha

He will not be eligible for gratuity because he hasn't completed 5 years of continuous service.

Regards,

Charvaka Reddy

Dear All,

Don't be confused. Please read the attached document which will clear all doubts.

Thanks,
Amit Sharma

Hi,

Greetings of the Day!

Please advise on the latest limit of Gratuity.

Sher Singh (HR) 9891758004.

Dear All,

Gratuity Calculation:
{Last drawn (Basic + DA) * 15 * No. of years} / 26
26 - number of working days in a month
15 days after completion of year of service

Regards,
Charvaka Reddy

If the employee's salary is structured in a CTC format, what is the criteria for Gratuity payment if the employee is terminated before completing 5 years? I would like to know the answer.

Dear,

Gratuity is payable on actual Basic Wage & DA only. If the services are terminated before completion of five years, then in that case, no gratuity shall be payable.

With Regards,
R.N.Khola

Dear,

Under the Payment of Gratuity (PG) Act, 1972, the maximum limit for the payment of gratuity is Rs. 3.5 Lakhs.

With Regards,

R.N. Khola

Dear Vinodji,

The CTC concept is not a legally recognized pattern of compensation fixing. As I understand it, CTC is prevalent only in new generation establishments as a way to 'attract' human resources. If gratuity is shown as a deduction from the total package under CTC, that, in itself, is incorrect. If an employee demands that any deduction made by the company from their salary should be returned to them, then the company would be obligated to do so. This is because any deduction not authorized under section 7 of the Payment of Wages Act is illegal, and gratuity is not a permissible deduction under section 7 of the said Act, like EPF or ESI.

Regards,
Madhu.T.K

Please tell me if any company terminates an employee, can the employee claim the gratuity?

What is the minimum number of employees in any organization so that they have an ambulance according to the Factory Act?

If termination is due to misconduct of moral turpitude or riotous behavior causing loss or damage to the property, gratuity can be forfeited even if he has completed the required service.

agdesai

Dear all,

Greetings,

Please advise if a person who has been terminated before completing 5 years of service will be entitled to gratuity, as they could not fulfill the 5-year tenure due to termination by the company.

Regards,
Jyoti Negi

Dear friend,

There is a clause in the Gratuity Act of 1972 that mandates 5 years of service to be eligible for gratuity. Regardless of circumstances, this requirement is non-negotiable. However, if the individual passes away before completing 5 years of service, they or their beneficiaries are eligible for gratuity. In cases where there has been misconduct such as theft or other negative incidents in the individual's career, management may be exempt from providing gratuity.

For any queries related to labor laws or HR, please feel free to share your knowledge.

Srinu
HR, VIZAG
09966003365
Email: srinupms@gmail.com

Dear,

Please post your query on a different thread as this is the thread relating to the Payment of Gratuity Act, 1972.

With Regards, R.N.Khola

Hi Jyoti,

If the employee is dismissed on grounds of theft, misappropriation of company's funds, or riotous or disorderly behavior, then he might not receive his gratuity.

Hi Jyoti,

In my opinion, he wouldn't be entitled to this benefit because an individual needs to complete 5 years of service before being able to claim this benefit.

Dear friend,

Here, I will provide a formula for the calculation of gratuity with an example. The data of the employee's service are as follows: total salary = 30000, basic + DA = 14300, total service = 8 years.

According to the Payment of Gratuity Act 1972, the formula states that the last month drawn salary (basic + D.A) / 26 X 15 X Number of years of service rendered.

Applying the formula, we get: 14300 / 26 X 15 X 8 = 66000.

If you have any doubts regarding this calculation, please feel free to share them with me.

Email: srinupms@gmail.com
Phone: 09966003365

Best regards,
SRINU DARA
HR, SEIL, VIZAG

Dear Vikram,

Greetings for the day,

I am inquiring about the requirement for having an ambulance facility in a factory for 500 employees.

Regards,
Sumit Kumar Saxena
9899669071, 0120-4131277

Dear Yash,

Greetings for the day,

Earned leave will be calculated on working days, i.e., by 26 when the month has 30 or 31 days, and also by 24 when the month has 28 or 29 days.

Thanks & regards,

From,
Sumit Kumar Saxena,
9899669071, 0120-4131277

The formula for the calculation of gratuity will be: last drawn salary (basic + DA) * years of service * 15 / 26.

Thanks & regards,

Sumit Kumar Saxena

9899669071, 0120-4131277

Dear Dileep,

Any act, including the Payment of Gratuity Act, is meant for employees working in an establishment. These acts do not have anything to do with how the management of the establishment is constituted, such as a Private Limited Company, Public Limited Company, Partnership, or Proprietary kind of management. Therefore, all the provisions of the Payment of Gratuity Act are applicable to an establishment run by a sole proprietor.

Regards,

Madhu.T.K

Employee has to complete 4 years and 240 days in the 5th year.

OR

240 X 5 Days (Excluding LWP Days)

The Calculation Rules are:

- 5 years (Gratuity per year): (50% of Last drawn Basic + DA) / 26
- 6 - 15 years (Gratuity per year): (75% of Last Drawn Basic + DA) / 26
- More than 15 years: (100% of Last Drawn Basic + DA) / 26

Dear,

Please let us know which of the Gratuity Act & Rules allows such type of benefits for the information of the Cite HR members.

Vbagderi's calculation of gratuity is wrong. I think there may be some formula being practiced in his establishment, and the poor employees have been accepting it as such. As per his method of calculation, the maximum gratuity will be one day's salary! The method of calculation already posted, i.e., last drawn salary divided by 26, multiplied by 15, and then multiplied by the number of years of service, will stand.

Regards,
Madhu.T.K

The question is whether an employee whose services are terminated by the employer before completing 5 years is entitled to receive/claim gratuity. The word "Termination" and the circumstances warranting such a "Termination" are important. As per the Gratuity Act, 1972 (Section 4 (6)), the gratuity payable to an employee may be wholly or partially forfeited for two reasons: if the employee has been terminated for (i) riotous or disorderly conduct or act of violence on his part; or (ii) on grounds of moral turpitude during the course of employment.

In the normal case, prior to termination of services, if the employer has gone through the prescribed processes of termination, and the misconduct is proved to be one of the above two grounds, then the employer is well within his right to forfeit Gratuity and not pay it.

This condition is applicable even for those who have put in more than 5 years of service or even say 30 years of service!

However, for those who are terminated well before a person technically qualifies for gratuity by putting in 4 years of service plus 240 days in the fifth year, the claim has to be made only through due process of law, establishing that the termination was due to a malafide intention, not attributable to any of the above two grounds for termination, and that the termination was done with an ulterior motive of evading payment of Gratuity. However, may I caution that this is a long-drawn process for both the affected employee and the Company. It would be wise to avoid such a situation on both sides.

EIRVALSA

Rather than creating confusion, it is well understood by all that payment of gratuity is only possible after completion of 5 years of service. As far as the above employee is concerned, he has only completed 4 years of service before being terminated. Regarding his compensation, please refer to the Industrial Disputes Act of 1947 to determine if compensation includes gratuity or not.

Thanks & regards,
Sumit Kumar Saxena

According to the Factories Act, 1948, 250 workers are necessary to have an ambulance, and if there are more than 500 workers, the principal employer shall constitute an ambulance room. If you have further doubts regarding the act, please go through the Factories Act, 1948, in the health measures sections from 11 to 20 and welfare measures sections 42 to 49 of the above act.

WITH BEST WISHES

SRINU DARA, HR, SEIL

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09966003365.

Hi Madhu T K,

I agree with your statement and would appreciate it if you could provide me with the court judgment of such cases, because, in general, it is not applicable unless a person approaches the court. The fact is, first, one has to complete the 5th year and then 240 days each year. If both statements are satisfied, then one can receive the same. I know that a few court cases are still pending in Tamil Nadu court, but I am not aware of their judgments. If you have the judgment, you can share it with us; otherwise, it's very difficult to go along with you, at least at this stage.

Regards,
Arun
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Dear friend,

He/she should have completed continuous service of at least 4 years + 240 days.