Is Gratuity Payable if You Leave Before 5 Years? Let's Discuss Your Rights

It is commonly believed that Gratuity is payable only after completion of 5 years of service period. However, it happens that at the time of a new appointment in a company, Gratuity is mentioned in the CTC breakup as part of the salary in the CTC statement provided to new joiners. But, suppose the employee leaves the company just after one or two years, and the payment of Gratuity is not made to him on the assumption that it is payable only if the employee serves the company for 5 years or more. I feel that if Gratuity is part of the salary, then it is payable even if the employee leaves the company after one year, and he can claim the payment if not made by the company. What is your opinion, sir? Kindly clarify.

Not payable to an employee if he leaves before completing 5 years of service. In that case, the gratuity money, which was part of his CTC, will be deposited to the government authorities by the employer.

I retired on the 31st of April 2010, which falls within the same financial year when the new gratuity amendment will come into force. I am puzzled by the Government order specifying that the new gratuity ceiling enhancement for private sector employees will only be applicable to those who retire from May 24, 2010. Can the Government reconsider the effective date to the first day of the current financial year?

What is the procedure through which this notification can be reconsidered? Kindly clarify.

Dear All,

Greetings for the day!

Mr. Suresh: Actually, as per the process and act, it states that employees who have not served within the same company for less than 5 years are not eligible for encashment. Another important point to note is that if a company has an account with LIC Gratuity Account, then the employee is eligible for gratuity encashment even if the service period is as short as 1 month. If the company does not maintain such an account, then the Gratuity Act - 1972 as per the Government regulations needs to be followed.

For more information, I have attached a file that provides details about the payment of Gratuity under the Gratuity Act of 1972.

It is a common practice in many companies to include gratuity in CTC. Strictly speaking, unless an employee completes continuous service of 5 years, they cannot claim gratuity. It is possible for an employee to negotiate at the time of joining that either gratuity be excluded from CTC or it should be paid even if employment ends before 5 years.

In our company, we have shown gratuity as part of CTC for senior managers, and it is payable even if they leave before 5 years. For middle and junior positions, gratuity is not included in CTC. It is payable if they complete 5 years.

• There is no harm if any employee receives Gratuity, even if they have served for less than 5 years. However, in reality, it is rarely paid.
  
• Employers should explicitly state in the CTC Sheet that 'Gratuity will be payable only after completion of 5 years of service' to prevent ambiguity and conflicts between the employer and the employee.

If gratuity forms part of CTC, the employee is entitled to it irrespective of the service rendered. If the employer fails to pay, the employee can approach a civil court for recovery or the authority under the Payment of Wages Act.

If not mentioned in the CTC, the employee is entitled only after 5 years of continuous unblemished service.

Forced Resignation and Gratuity Payment

What if management asks HR personnel to enforce a forced resignation on employees as a cost-cutting measure? Do we have to pay gratuity to employees who are asked to submit their resignations under forced resignation, regardless of the time period they have served the organization? The employee is not willingly resigning from their respective post; rather, they have been asked to resign by management.