Is 4.5 Years Enough for Gratuity in India? Understanding Eligibility and Rules

Hi,

I wanted to know if a person who has served in a private organization in India for 4 1/2 years is eligible for gratuity or not. Is the notice period considered as a term of service? Also, does the Payment of Gratuity Act override the company's own set of gratuity rules? Are there different sets of rules for Indian and foreign companies operating in India?

Thanks.

First of all, any company operating in India, whether Indian or foreign, must adhere to the country's labor laws. For payment of gratuity, completion of 5 years of service is required.

Thanks and regards,

Sumit Kumar Saxena

Dear,

He is not eligible to have gratuity from the organization. If the company has framed any Gratuity payment rules, then, in that case, those should not be less favorable than that provided in the Payment of Gratuity Act, 1972 if this Act is applicable to that unit.

With Regards,
R.N.Khola

Hi, I wanted to know if a person who has served in a private organization in India for 4 1/2 years is eligible for gratuity or not. Is the notice period considered as a term of service? Also, whether the Payment of Gratuity Act overrides the company's own set of gratuity rules? Are there different sets of rules for Indian and foreign companies operating in India?

Thank you.

1. Yes, the notice period is considered as a term of service.

2. The Payment of Gratuity Act states that any employee who has served for 5 years will have to receive gratuity at the rate of 15 days' salary for every completed year.

3. Yes, a company can have its own rules for the period of gratuity eligibility. For example, some software and IT organizations have a 2-year period as the eligibility for gratuity. However, according to the law, you must provide gratuity as part of your welfare program.

Dear Sir,

An employee is entitled to gratuity if he or she has worked in an organization for five years or more. The calculation of gratuity is based on 26 days per month, as per the Gratuity Act. The notice period is considered as part of the term of service.

Thank you.

Dear Friend,

Not. At least, he should have completed 4 years + 240 (8 months) to become eligible for gratuity. In the case of death, such service is not compulsory.

Sathish

Dear Friends,

One can claim gratuity when they have completed more than 4.5 years. In these terms, more than 0.5 is considered as 1 year.

5 years of completed service is a must in order to ensure eligibility for gratuity as per the Payment of Gratuity Act, 1972, except in the case of death. A company can have its own set of rules, provided they are not less beneficial compared to the provisions of the Payment of Gratuity Act, 1972. Companies operating in India, whether Indian or foreign, must adhere to Indian labor laws.

Thanks and regards, Shesh Nath Singh 9443328010

No, gratuity can't be a part of CTC because it is a gesture of gratitude or reward to the employee from the employer after the successful completion of 5 years or more in service.

Thanks and regards,
Sumit

I have come across some companies where if an employee completes 3 years of service, they are eligible for Gratuity. Is this fine? Because the law states that employees will have to complete 5 years.

Dear,

Of course, it is fine.

With Regards,
R.N.Khola

I have come across some companies where if an employee completes 3 years of service, they are eligible for Gratuity. Is this fine, because the law says the employees will have to complete 5 years.

Dear, first of all, an employee is eligible for gratuity only after completing five years of service.

I differ with the remarks given by Sathish on the eligibility part. 4 years & 240 days cannot be the eligibility criteria for gratuity. It is from the date of joining to the completion of 5 years.

Thanks,
Shreedhar Kantharia
Re: Gratuity Eligibility

Dear Friend,

Not. At least he should have completed 4 years + 240 days (8 months) to become eligible for gratuity. In case of death, such service is not compulsory.

Sathish

Normally, in any offer of appointment, however small the organization may be, they will mention that PF & Gratuity would be as per rules. As the eligibility of gratuity starts after completion of 5 years of service, the question does not arise to add it to the CTC at the time of initial appointment. Some companies calculate notional Basic + DA at the time of initial appointment itself, so that no ambiguity is faced while arriving at the gratuity amount at the time of payment at a later date.

The rule of considering the service of 6 months or above as a completed year of service for gratuity purposes will be applicable only after the completion of the first 5 years of service but not to fill the gap of 5 years. Perhaps, your employer made the decision to let you go only to avoid providing gratuity.

Hi Friend,

Please refer to the attached case law. 240 days should also be considered as one year completed.

Regards,
Shyam Pandirkar
9320023005/9870166192

1) Give an example of gratuity calculation.

2) If a company has given an appointment letter on a contract basis for 7 years, then does gratuity apply or not?

Hi,

He is eligible for gratuity if he has spent 4 years and 240 days in continuous employment. However, if the company has framed any Gratuity payment rules, then those should not be less favorable than that provided in the Payment of Gratuity Act, 1972 if this Act is applicable to that unit. He will be governed by those rules.

Hope this answers your query. If you want more details, please put forward your query.

Thanks & Regards,
Chander Mohan Mohla

The following points should be of interest in this discussion:

As per Sec 2(e) of the Payment of Gratuity Act 1972, an employee becomes eligible for gratuity when he completes 5 years of service.

However, there have been certain case laws wherein, for the purpose of determining the completion of the 5th year (where the ex-employee is to be paid gratuity), courts have ruled that completion of 240 days of duty in the 5th year can be taken as completion of 5 years for the purpose of giving gratuity.

This is a benevolent provision to prevent denial of gratuity on technical grounds that an employee has not completed 5 calendar/full years of service.

Any organization is free to award more beneficial terms regarding any provisions set out in Labour Acts. Therefore, it is perfectly alright (and indeed commendable) if an organization wants to give gratuity even prior to completion of 5 years.

In case of accident or death, gratuity can be paid irrespective of the number of years completed.

Hope the above helps in appreciating the legal provisions for gratuity.
Warm regards.

Dear friend,

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

Sathish

Hi,

To be eligible for gratuity, one has to complete 5 years of service. All units in India, irrespective of foreign or local, will have to abide by the rule in India. Any company can formulate their own gratuity rules; however, the provisions therein should be more favorable or beneficial to the employees.

A reference to the Gratuity Act will clarify the matter.

Regards,
Pavithran.

Dear learning friend,

Sorry to say that with mediocre knowledge, you are taking the initiative to criticize others. Continuous service of 4 years and 240 days in a sole organization is the criteria for gratuity eligibility. You are advised to consult an HR expert or review remarkable judgments regarding this dispute.

Bai,
Sathish

Hi friend,

Please find attached the case law which states that 240 days of service are considered as one completion.

Regards, Shyam Pandirkar 9870166192

Dear Ootb, I find several replies not satisfying your query.

However, I would like to attempt to satisfy your queries as follows:

1) Your query about a person who has served in a private organization in India for 4 1/2 years and whether they are eligible for gratuity seems incomplete. It is important to clarify whether the individual resigned from the service, was terminated by the company after serving due notice, or was dismissed due to misconduct. The gratuity law varies depending on the circumstances. According to Section 4(1) of the Payment of Gratuity Act 1972, an individual is not entitled to gratuity unless they have completed a minimum of 5 years of service in the organization. However, if the company has its own set of rules that allow gratuity with a shorter period of service, the individual may be eligible for gratuity under those rules as per Section 4(5) of the Act. If the employee has been terminated due to willful omission or negligence causing damage or loss to the employer's property, the gratuity can be forfeited as per Section 4(6)(a) or (b), even if they are eligible for gratuity under the company's rules.

2) The notice period is considered a part of the employee's service as they continue to serve the organization during that period.

3) The Payment of Gratuity Act supersedes the company's own gratuity rules if the company rules are less favorable to the employees compared to the Act. However, if the company rules are more generous, the Act does not override them as it sets out the minimum benefits that companies should provide to employees.

4) There is no distinction between Indian and foreign companies operating in India if the foreign company is established under the Companies Act of India. All companies operating in India must comply with the laws of the country.

I hope this clarifies your queries. I have also attached a copy of the Payment of Gratuity Act for reference purposes.

PS Dhingra
Vigilance & Transformation Management Consultant
Dhingra Management & Educational Consultancy Group
New Delhi

Dear All,

An employee who has worked for more than 240 days in the fifth year will be eligible for Gratuity, as has been ruled by the honorable High Court of Madras, as reported in Mettur Beardsell Limited, Madras Vs. Regional Labour Commissioner (Central), Madras & others 1998 LLR 1072 (Mad. HC).

With best regards,

B.L. Rao (BANDARU.LR@GMAIL.COM)

Dear Sabana,

Please go through Section 4 of the Payment of Gratuity Act, 1972 for the calculation of the gratuity amount.

With Regards,
R.N.Khola

[sabana_pmir;1039904] Can you explain how to calculate the gratuity amount as per the act?

Last drawn salary (basic + DA/VDA) * years of service * 15/26.

Sumit Kumar Saxena
9899669071, 0120-4131277

I am curious why gratuity is not included in CTC calculation? CTC stands for "cost to company", correct? Since gratuity is a "cost to company" (a liability the company needs to accrue for or has insured externally), it seems to me it is a cost to the company (liability expense) even if the associate has not worked for the company for 5 years. Any perspective would be helpful.

Thank you, David Bailey

I have completed 5 years in my company, and now the company is changing the status from Liaison office to India Private Limited. They are also providing Gratuity to all employees, even those who have not completed 5 years. My question is, is it legal to give Gratuity at this stage? I may continue to work in the same company for another 5 years or more, and the gratuity will then be based on the last salary drawn. I feel like I am at a disadvantage in this situation. I will also have to pay income tax on this amount, whereas Gratuity up to 3.5 lakh is tax-free as of today, and after 1st April 2010, it will be tax-free up to 10 lakh. Please advise on my issue. Thank you.

Dear Friend,

A person who was working in a private or limited organization is eligible for gratuity. In response to your second question, if he was working for 4 and 1/2 years, then he would not be eligible for gratuity because the gratuity eligibility limit is 5 years.

Thanks,
Kalpesh Parmar

Hi all,

Gratuity is a part of CTC. CTC is defined as the total cost borne by the company for an employee. Hence, Gratuity/PF/Medical Insurance [if any] all come under CTC, although it is paid as per the Payment of Gratuity Act, 1972. For an employee to be eligible for gratuity, he should minimum complete 4 years and 240 days.

However, some companies pay ex-gratia to the employee even after he leaves the service before 1 year. In such cases, gratuity is not calculated as per the formula defined by the act. Just the accumulated amount is given.

For an employee who worked more than 4 years and 240 days, the formula for calculating Gratuity is:

Last Basic/26 * 15 days * number of years

For example:
Last Basic: 10,000
Number of years worked: 4.8 [4 years 8 months - rounded to 5 years; if it's 4.4, it will be rounded to 4 years]
Gratuity: 10,000 / 26 * 15 * 5
=> 384.6 * 75
=> 28,846

Experts, please correct me if I am wrong.

Thanks,
Amrita Mishra/Sachin Lala
CA/HR-Comp & Ben

Dear All,

I have been working in a private limited company for the past 15 years. Am I eligible for gratuity? Please help me.

Indu Sharma

Hi, I have completed my service for 4 years and 11 months and 18 days in a private multinational company. Can you kindly advise me on whether I am eligible for gratuity? Additionally, please provide the laws and sections that pertain to the gratuity act in my situation. I had previously submitted the gratuity form to my company, but now they are saying that I am not eligible.

Dear All,

I am employed by a UK company with an appointment letter on UK letterhead as Country Manager for India. The company still maintains a branch office and a private limited company registered in the ROC Karnataka, which remains active. In 2005/2006, the company had around 20 employees whom they terminated and paid off. Currently, there is only one employee in the private limited company, and I continue to hold the same employment letter from the UK company.

The company now intends to terminate my employment, and I am asserting that they are obligated to pay me gratuity. The company argues that gratuity can only be paid when there are at least 10 employees in the company. They insist that since the employment is based in India, only Indian employment law would be applicable, not UK employment law.

Could you please advise me on whether I am eligible to claim gratuity in this situation?

Sincerely,
Gopal

Dear Gopal,

According to the Payment of Gratuity Act, 1972, once the Act becomes applicable to any establishment, it shall continue to be governed by this act even if the number of employees falls below ten at any time after its applicability. Relevant section 3(A) of this Act may be read as follows:

(3A) A shop or establishment to which this Act has become applicable shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

In view of the above, you are eligible to receive gratuity from your employer.

R.N.KHOLA
(Labour Law Consultants)

Dear Khola,

Thank you for your email. I have proof of starting EPF for the 20 staff who were there during 2005/2006. Gratuity was not paid to them at the time of termination since no one had completed 4 years with the company. Under this situation, is it still valid that I am eligible to get Gratuity paid even though there is only one employee?

Thank you,
Gopal

As already stated, you are eligible to receive gratuity from your employer as per the Payment of Gratuity Act, 1972.

Regards,
R.N. Khola
(Labour Law Consultants)

He is not eligible to have gratuity from the organization. If the company has framed any Gratuity payment rules, then in that case, those should not be less favorable than those provided in the Payment of Gratuity Act, 1972, if this Act is applicable to that unit.

With Regards,
R.N. Khola
Sr. Associate (LL & IR)
Skylark Associates, Gurgaon (Haryana) (Labour Law Consultants)
Office: 311, AKD Tower, Sector 14, Gurgaon
(M) [Phone Number Removed For Privacy Reasons] (O) [Phone Number Removed For Privacy Reasons]

If a person has put in 240 days of continuous service in the fifth year, he will be entitled to receive the gratuity. The judgment of the Madras High Court supports this view.

Pankaj

I wanted to know if a person who has served in a private organization in India for 4 years and 11 months, and then had a 1-month notice period, is eligible for gratuity. Is the notice period considered as a term of service?

Thank you.

I have worked in a company for 4 years and 8 months. Please let me know about my eligibility. Is there any decision from any court?

Please help.

Regards,
Pardeep Khaneja

Sumit,

For new employees joining the company, gratuity is shown as part of his/her salary at the time of joining. The CTC of an employee is represented as an increased amount.

Companies and HR should discourage such types of inflated salaries for which the employee is automatically entitled.

Krishan Grover

Thanks & Regards,
Krishan Grover

Dear Sir/Madam,

I was working in a private limited company for the last 4.5 years (30/06/2011 to 01/12/2015). This is an Indian company. Please confirm to me if I am eligible for gratuity or not because I was searching some blogs on your site, and they mentioned 4.5 and 4.8 as eligibility criteria for gratuity.

Please provide the correct suggestion along with the relevant act/rule.

Thank you.

If you have completed 4 years and 240 days, you shall be eligible for Statutory Gratuity payment. However, if you are covered under non-statutory gratuity and your salary is being deducted every month, then you will be eligible for gratuity payment.

Working for 240 days in the fifth year is a must to become eligible for gratuity.