Is a Long-Serving Director in a Pvt Ltd Company Eligible for Gratuity?

In a Pvt Ltd Company, the Director, who has been drawing a salary for the last 21 years, is he eligible for Gratuity? The company has more than 10 employees. What is the minimum and maximum gratuity that can be paid?

Arun

Dear Arun,

There is no minimum/maximum limit of gratuity. You need to calculate the gratuity amount as per the formula mentioned below: (Basic + DA / 26) * 15 * No. of completed years of services. The ceiling value for tax purposes is ₹10,00,000.

Thank you.

Understanding the Gratuity Act

The Gratuity Act, though promulgated through enactments, is being contested by employers. To clarify lawfully, the Act does not provide 100% clarity to anyone, including the lawmakers. The Act stipulates that any employee who has completed five continuous years of service in the same organization is eligible for Gratuity. Employees with intermittent, interrupted, or discontinued service, or those who leave and rejoin the same organization, are not entitled to Gratuity.

The Gratuity amount to be paid is calculated from the completion of five years of service until the end of employment. The calculation is based on 15 days of the latest Basic and DA as parameters. Even if an employee completes five years or more, they may not be eligible for Gratuity due to reasons such as fraudulent activities, continuous unexplained absences, insubordination, sabotage, intentional disruption of the organization, unwanted union activities, or any other actions that violate harmonious relationships as per the Model Standing Orders Act.

Employees with a clean record may receive Gratuity without any reservations. Those with less than five years of service, even if they provide excellent services, are not eligible for Gratuity, not even for a month or less. Gratuity payment is not restricted to specific job levels but applies to all employees.

In essence, Gratuity serves as an acknowledgment of an employee's meritorious, honest, sincere, and continuous services by the employer.

I hope this explanation is clear to you.

Best wishes,

Dear Mr. Arun,

You have inquired about the director who has been with the company for the last 21 years. If he is an employee, i.e., a paid director, then he is eligible for gratuity payment as explained.

Savita

I want to ask you seniors a question. What if an employee joins a company on 1st Jan 2010? The company covers the employees for gratuity on 01 Jan 2012. Which date will be calculated? And what about the years of honest service that the employee has given? For this particular employee, will the gratuity start from 2010 or 2012?

Seniors, please answer my question.