Gratuity Eligibility Confusion: How Would You Handle This Interview Challenge?

Dear All, When I attended an interview, the interviewer asked me if an employee who has worked for 4 years and 8 months is eligible for gratuity. I answered no, but he challenged my response, stating it was incorrect. I explained that the concept of counting six months as one year is only used for calculating gratuity, not for determining eligibility. However, he disagreed with this concept.

How Would You Answer and Justify This Situation?

Please share your thoughts, friends.

Regards,
Carmel

My answer to the query would be YES. Under the Gratuity Act, the prime requirement for a person to be eligible for gratuity is that they must have served for 5 years. Now, the question is how the period of 5 years has to be computed.

Continuous Service

See Sec. 2A. Continuous Service. In the said section, it has been provided that a person would be said to be in continuous service of one year if the employee, during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than 240 days (See Clause (a) of Sub-sec (2) of Sec.2A).

Now, as per the question of the interviewer, the person has rendered 4 years and 8 months. We presume that they have rendered continuous service without any interruption. Thus, they rendered five years of service and would be eligible for gratuity.

There is one judgment on the subject as well. Hope I am clear.

Regards,
Further

Dear Puneet,

Reasons for Denying Gratuity Eligibility

The following concepts lead me to stand by my answer NO:

1. An employee has worked only for 8 months, so 8 x 26 = 208. This duration does not meet the days required to be considered as continuous service. A complete service of 240 days is treated as continuous service.

2. An employee who has worked for 4 years, 11 months, and 10 days is not eligible for gratuity, as decided in P. Raghavalu and Sons Vs Additional Labour Court, Andhra Pradesh. The qualifying phrase 'part thereof in excess of six months' should only be considered for the calculation of gratuity, not for determining the eligibility of gratuity.

Regards,
Mt. Carmel

Good Carmel,

What you said is correct. 240 days in a year are most important. For example, an employee works for 5 years, and if he has only worked 205 days in the third year, he is not eligible for Gratuity. I totally agree with you.

Please let me know what should be considered while calculating? Is it 4 years and 8 months, or 4 years, 11 months, and 10 days?

Dear Carmel,

He is eligible for gratuity benefit because he has completed 4 years and 240 days as declared by the high court judgment.

Regards,
A.K. Goyal

Dear Mr. Punit and Mr. Goyal,

Could you please share the judgment of the high court on gratuity that clears the doubts of people regarding the entitlement of gratuity?

Thank you,

Sunil Nipurte

Dear Shyam,

As a professional, you are required to abide by the spirit of the rules and not just the letter of the rules. Every rule is associated with another rule or a set of rules or orders because no single rule can be considered a comprehensive regulation for the service of an employee/worker. As an employer, you must provide a weekly day off to a worker after every six days of work. You are also obligated to pay wages for the weekly day off if the worker has been present for all six days preceding the day off. If your office is closed on the weekly day off, you cannot force a worker to come to the office or factory on the seventh day just to acknowledge the closure.

Naturally, if you have paid wages for 240 days during an eight-month period under consideration, the worker has rendered service for 240 days, not 208 days, as per your interpretation. On the other hand, if a worker has been employed with you for more than five years but has not completed a minimum of 240 days in any one year out of those five years, what is your interpretation in this case? Can the worker be considered to have completed five years of service for gratuity eligibility purposes? Please reconsider if you would like to provide gratuity in that scenario.

Gratuity Eligibility Clarification

Dear Puneet, the following concepts lead me to maintain my answer as NO:

1. An employee has worked for only 8 months, so 8 x 26 = 208. This does not meet the required days for continuous service. A complete service of 240 days is considered as continuous service.

2. An employee who has worked for 4 years, 11 months, and 10 days is not eligible for gratuity, as decided in P. Raghavalu and Sons Vs. Additional Labour Court, Andhra Pradesh. The qualifying phrase 'part thereof in excess of six months' is only considered for calculating gratuity and not for determining the eligibility of gratuity.

Regards,
Mt. Carmel

Dear Mr. Dhingra,

I still have doubts about the days calculation that you mentioned in your reply. Regarding the calculation of the days worked, we will consider only 26 days as per the mentioned act. Therefore, I am in agreement with our friend Carmel.

Thanks and regards,
Kiran

Dear All,

Understanding the "26 Days" Concept in Gratuity Calculation

The concept of "26 days" is specifically for calculating the quantum of gratuity. If you use 30 days in the formula, the denominator is higher, resulting in a lower gratuity amount. The "26 days" concept should not be applied universally or used to deny workers their rightful dues.

It is unfortunate that in India, there are over 1500 labor laws, all of which are voluminous. This complexity can lead to misunderstandings. Sadly, we Indians often look for loopholes to avoid compliance, showing a lack of respect for the 'spirit of the law.'

The Philosophy of Labor Laws

The basic philosophy of labor laws is to ensure certain benefits for the labor class, who are at a disadvantage compared to the powerful employer. Unfortunately, we HR professionals sometimes prioritize pleasing management for personal gain, seeking ways to "save" money by exploiting loopholes, which some might consider "smart."

In this discussion, only Mr. Dhingra has suggested that we should respect the spirit, not just the letter, of the law.

HR Practices in Other Countries

I wonder how HR functions in other countries, where employees can be "whistle-blowers" and the law protects those who testify against their employers.

Dear Mt. Carmel,

I presume your nickname is from your alma mater, so I hope you work towards enhancing its prestige.

Let us not trivialize the Labor Acts by prefixing terms like "Great" or otherwise. We should respect the Law, especially Labor Laws, as they are connected to the livelihood of HR professionals.

The thread stands closed herewith.

Warm regards.