Is It Legal for an Employee to Transfer Gratuity Benefits Within the Same Group?

Dear All,

I am putting a situation to be discussed here openly.

An employee 'RAM' is working in 'X' Group. The group operates by forming different companies. 'RAM' has been working for more than three years in one of the companies of 'X' Group. Suddenly, he decides to switch over to another company within the group for monetary benefits.

Before switching, he puts a condition to entitle him for gratuity and asks to enter a provision in the books of accounts that whenever he will leave the job from the group, his services should be counted uninterrupted, and he should get gratuity from the previous company as per his length of service, i.e., more than three years.

The company also agrees to him and puts this on paper, duly signed by the authorities. They term this as a transfer from one company to another, although after full & final settlement, including encashment of PL.

Does his condition and authorization from the authorities are legal as per The Payment of Gratuity Act? Is there any provision in the books of law that supports his condition and decision taken by the authorities?

Kindly give your valuable inputs on this situation.

Thanks & Regards,

Satya

Since the ultimate employer of the group of companies is one and the same, there is nothing wrong in treating services of employees at each unit as uninterrupted for the purpose of determining the eligibility and calculating the amount of gratuity. The Gratuity Act also requires finding gratuity payable on a yearly basis and investing the same in insurance policies so that the employer would not face any problem when an employee leaves. It is implied that a provision for gratuity is to be made before the accounts are finalized and filed for income tax purposes. Therefore, even without any express agreement about gratuity on transfer, it shall be deemed that his past service with one unit of the same group has been transferred.

Since the gratuity is payable by the unit where he works last and whereas it would not be justifiable if the entire amount is treated as that unit's cost alone, it is common that on each such transfer any gratuity provision made for the said employee will also be transferred to the unit to which he has been transferred.

Regards,

Madhu.T.K

This is perfectly legal, and there is no breach of any legal provisions. In case any employer is providing more benefits than what is prescribed in a law, it is not a breach of any provisions of law, and it is welcomed.

Take an example of the Minimum Wages Act. The Act prescribes the minimum wages to be paid by the employer. If we stick to the provisions of the law, then there is no need to give any increments and salary rise, and everyone in a particular category will draw the same salary (Minimum Wages).

Thanks & Regards

Dear,

This is perfectly correct. Since the management is one and the same, they may treat previous service also for the purpose of gratuity.

N. Kannabiran

Dear All,

Thank you for your valuable input. Special thanks to Mr. Madhu T.K. for initiating the discussion and setting the groundwork.

I have only one query after your clarifications: does this apply to all who resign from one company and join another within the same group, even if they are unaware of this entitlement and do not stipulate the condition of transfer? In that situation, shouldn't the group authorities make them aware of this eligibility to extend the benefit of gratuity to them? Is the employee entitled to a similar benefit even if it is not explicitly expressed by either party? Can they demand that benefit?

Kindly provide input on this scenario as well. It would be greatly appreciated.

Best Regards,
Satyajeet

Mr. Satyajeet, you have raised a very valid point.

- It seems intercompany transfers within a group are common in your case. I would suggest that your management should deliberate and discuss this matter with the available data on transfers and come up with a policy on this.
- It seems that now only those with negotiating power are getting this benefit, and there may be others who are either ignorant about this benefit or denied this benefit.
- In my opinion, all employees should be treated equally, and continuity of services should be counted for all, irrespective of position, grade, etc. You may also have to think of formulating policy in other matters where the length of service is of importance (seniority, promotions, etc.).

Thanks & Regards

It applies to all employees who resign from one company and join another company of the same GROUP. This is because the responsibility of payment of gratuity lies with the employer, and even if the employee who leaves the establishment is not asking for gratuity, the employer has to pay it within thirty days of his leaving. However, to be specific, it will be advisable to have a policy in this regard whereby such resignations would be deemed as transfers for the mutual benefit of the employer and the employees.

Regards,
Madhu.T.K

Dear Mr. V. Kokamthankar & Mr. Madhu T. K.,

Sincere thanks for your clarifications and advice. It's good to be a member of CiteHR to get such guidance.

Warm Regards,
Satyajeet