Gratuity Dilemma: Can Employees Claim It if a Company Shuts Down Before 5 Years?

If a company closes where an employee's service to the company is less than 5 years, can the employee receive gratuity? Please guide us.

Regards,
Sachin

Payment of gratuity.

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years:

- on his superannuation,
- on his retirement or resignation, or
- on his death or disablement due to accident or disease.

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Further provided that in case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs. Where any such nominees or heirs are minors, the shares of such minors shall be deposited with the controlling authority who shall invest the same for the benefit of such minors in such bank or other financial institution, as may be prescribed, until such minors attain majority.

Disablement means such disablement which incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement (Section 4(1)).

To know more, please see the link [KVJ Raghunath: The Payment of Gratuity Act, 1972](http://paymentofgratuityact1972.blogspot.com/2010/05/payment-of-gratuity-act-1972.html).

KVJ Raghunath

9701966688

Hi Sachin,

Payment of gratuity can be made even if an employee's service period is less than 5 years. The 5-year criteria is only for income tax purposes. If an employee completes 5 years of service, then he/she is eligible for tax exemption.

Hi Dear HR team,

This is Vasu. I have joined as an HR Executive a couple of months ago. I am requesting information regarding gratuity eligibility after completing 5 years of service. How many months' worth of amount should be provided to employees as per the act?

Thank you.

Dear Rushpal,

The term superannuation refers to when an employee reaches the age of 58. Retirement can take various forms, with Voluntary Retirement Scheme (VRS) being a popular option. Upon reaching the age of 58, it is commonly referred to as "Superannuation." Trust matters have been clarified. For any further queries, please contact [Login to view].

M.V. Kannan

Dear Sachin,

It is very strange to read the above unwanted opinions by my other dear friends. What's a query and what they are explaining is not well, dear.

What Raghunath has displayed is a provision of The Payment of Gratuity Act, and it sheds light that only in the case of death or disablement can gratuity be entitled before completing 5 years of continuous service. On the contrary, those who have been fired due to the closure of the company before completing 5 years of service are not eligible to receive the payment of gratuity.

So, understand it and don't be confused with the query.

Regards,
KIRAN KALE

Dear Amar,

Payment of gratuity can be made even if an employee's service period is less than 5 years. The 5-year criteria is only for income tax purposes. If an employee has completed 5 years of service, then they are eligible for tax exemption.

Your statement is misleading and attempts to combine two entirely different acts into one category. An employee who has not completed a continuous service of 5 years should not be entitled to the payment of gratuity. Regarding income tax, those who are liable for income tax would be exempt from it when they receive the gratuity payment after completing 5 years of service.

Please do not misunderstand the information provided.

Regards,
KRAN KALE

Dear Mr. Kiran Kale,

Good evening.

Please clarify the above matter: what should be done when the company is closed and the employee has not completed 5 years of service? Is gratuity payable or not?

Dear HR Colleagues,

Can anybody guide me or suggest me on the below-mentioned issue?

One Trainee Engineer was working in our organization, and he completed his 1-year service. After finishing his duty, when he was proceeding to his home, he met with an accident and died.

Now, I have one doubt regarding his PF pension. He had nominated both his father and mother. Who is eligible to receive the pension? He is from a Muslim community.

This matter has been discussed with some of my friends, but according to one of them, the Muslim personal law is applicable in the PF Act, and his mother is not eligible to receive the monthly pension.

Regards,
Mahendra

If an employee completes his service for 4 years and 11 months continuously, and the company closes its location, will he be eligible to receive the gratuity amount? Please confirm.

Regards,
Omar Sharief

In case you approach the local State Labour Machinery, your claim can be entertained up to a maximum of 30 days of earned leave (EL), as in most Shops & Establishment Acts of the States, the maximum accrual of EL is 30 days.

Regards,
PRADEEP

Dear Mr. Kiran,

Please try to explain your point without offending the comments made by others. It is important for you to consider who is addressing whose query. The answer may be directed to a query posed by another person in the thread.

This is a professional forum, so please confine your comments to the topic at hand.

Thanks,
M.V. Kannan

Dear Mr. Mahendra,

Please do not keep worrying about the matter of who is eligible. I suggest that you do the following:

1. Advise the claimants (father or mother) that in case of a dispute between the parents, they should file a legal heir certificate from the local tahsildar or an authorized authority. In some cases, the court may issue a legal heir certificate.

2. Once you have the legal heir certificate, ask them to submit Form 19 for PF claims and Form 10D for Pension claims.

3. Please note that the nominees are eligible to receive the EDLI benefit (Employees' Deposit Linked Insurance Scheme).

4. It is advisable to consult a lawyer and draft an indemnity bond. This bond should state that the employer is processing the PF/Pension claim based on the legal heir certificate provided. In case someone else makes a claim in the future and is entitled to it, the nominee will indemnify the amounts due to the third party. The company will not be involved in settling such claims.

If you have any further queries, please feel free to contact me at kannanmv@vsnl.net.

M.V. Kannan

Dear friend Harinder Singh,

Initially, I would like to explain that in the circumstances where the company is legally closed, and not a single employee has completed the required 5 years of service as stipulated in The Payment of Gratuity Act under section 4, as Raghunath has reproduced, there should be no doubt that if employees lose their employment before completing 5 years, they are not eligible to receive gratuity payments.

Regards,
KIRAN KALE

Mr. Kale is absolutely right that our dear friends are focusing on other issues but not on the exact query. So kindly focus on the main issue. I also want to draw attention to our friends regarding entitlement for Gratuity, which is 5 years; it has nothing to do with income tax. 5 years is mandatory.

Regards,
Rajesh Chakraborty