Gratuity Dilemma: Are We Legally Required to Pay an Employee Who Resigned Abroad?

Hi, we have a situation where an employee has been working with us for the last 11 years and 8 months. He recently resigned while working for our UK company. Originally from our India company, he has been in the UK as part of an internal company transfer for the past 18 months.

Gratuity Payment Policy

According to our policy, we do not pay gratuity to employees who resign at onsite locations. Is this legal? Or is it not relevant where this employee resigns since he was working for the company, and we are obligated to pay him the gratuity?

If an employee has transferred internally, you also need to pay him gratuity because it is a statutory payment that we have to make to the employee compulsorily.

It does not make any difference whether the employee is working onsite or offsite, or whether working in India or abroad. The only important thing is that he is defined as your employee, and gratuity benefits shall verily be legitimate to be paid to the employee.

Thanks and regards,
Prasiddh
[Phone Number Removed For Privacy Reasons].

One more clarification with this transfer: he is on the UK company payroll and not the India payroll.

Gratuity Payment Under the Payment of Gratuity Act

Gratuity is payable for past service under the Payment of Gratuity Act if the employee has completed the qualifying service of four years and eight months. It does not matter if an employee resigns to join a new assignment, whether on-site/off-site, in India, or abroad. It is a statutory liability of the employer to provide for the gratuity payment to its employees on an accrual basis or an actual basis in the books of its accounts. This expenditure is allowable but taxable at the hands of employees.

An employer cannot escape the payment of gratuity to eligible employees under the Payment of Gratuity Act.

Our company is a large IT company. Such cases are very few. For business purposes, we have employees traveling and working out of the UK/US, etc. All these employees are logically part of the same umbrella company. When they are on deputation onsite, they have local holidays and other benefits. Even though we discount his onsite duration, he crosses 5 years on the Indian Payroll.

You have to clarify the following:

1. Was the employee on the rolls of your company in India?
2. Was he transferred or seconded (handed over to the UK)?

In any case, in my opinion, if he has been transferred and was on your rolls, then you need to pay Gratuity until his date of resignation. However, if he has been seconded, then you need to compute Gratuity until he served with you and pay him.

In simple terms, if you had paid salary until he resigned, then Gratuity is payable until his date of exit. If salary is paid by the UK, then until he served in India, Gratuity is payable.

You may also come across a situation wherein the UK company will be paying the salary but will claim it as a reimbursement from the Indian Company. Even in such a case, in my opinion, Gratuity is payable until his date of exit.

Trust the matter is clear.

Regards,
M.V. KANNAN

Gratuity payments are rules, not company policy. If someone has worked for more than 5 years with your organization and then leaves (voluntarily or involuntarily), you are required to pay gratuity.

Regards,
Ravi Shekhar

Dear Sanjay and all others,

Clarification on Gratuity Payment

1. Gratuity is payable upon the completion of 5 years.
2. It is an act/rule and not a company policy.
3. As one of the respondents has mentioned, whether the person is employed by an Indian company or otherwise is all that matters. If appointed by an Indian company, whether he works in India or abroad, he needs to be paid gratuity.
4. As another respondent has stated, if the person is appointed by an Indian company but working in a foreign country and taking a salary there, reimbursed by the Indian company, even then gratuity is payable.
5. Only if the person has resigned and has been taken in as a fresh employee in their foreign company, is the person eligible for gratuity till his date of resignation. If he has completed 5 years, he is eligible for gratuity.

Regards,
K. Ramachandra
Bangalore

Dear all,

Yes, irrespective of whether the person is working for your foreign company (on deputation or transfer), as long as he is on the rolls of your company, you need to pay gratuity. As someone rightly said, it is not the company's policy; it is a statutory obligation.

By the way, I came across something like this: when you show the gratuity amount in your CTC computation, you need to pay gratuity whether he completes 5 years or not. Is this right? If anyone has any court ruling on this issue, please send it to me or shed some light on this.

Thanks,
V. Balaji

Mr. Kannan and Mr. Ramachandra have put things correctly. The employee's current employment is relevant. Gratuity is a legal compliance and needs to be treated with respect. Never violate the legal provisions. Please pay what is due.

Regards,
JR Kumar

Gratuity is an act and should be followed at any cost by any company registered in India. As you said, if the employee is under Indian payroll and working onsite at some part of the world outside India, your company has to pay him gratuity if the employee completes 5 years of service.

If your company in India has the employee transferred (sent) to any sister concern which does not have any compliance with the Book of Records with Indian Acts, then you can carry on as per the government Act of that particular country where his present employment is enrolled.

You don't have a legal department? It is a simple violation of the law. Being a large IT company, how are your department and the legal department allowing this type of grave non-compliance? I don't know. The person should send a legal notice to your company. Then only will the employer understand that parliament is mightier than him as far as policy formulation is concerned.

As per the judgment of the Madras High Court, the period to qualify for gratuity is 4 years and eight months, and the Supreme Court has also approved it. Please let me know if you need further assistance or clarification.

Thank you for the clear statement about gratuity, sir. I would like to know whether a company can have different formulas for arriving at the gratuity amount for an employee. Is that legally advisable?

There is no ambiguity about how to arrive at a figure for gratuity pay-off as per the law. It is basically calculated as follows:

1. Basic/26 x 15 days x number of years of service OR
2. Basic + DA (Last Pay drawn) x 15 / 26 x Number of Years Worked

There is no question of calculating differently.

If the employee in question has continuously worked for five years and above on your rolls, gratuity is payable until he continues on your rolls.

Thanks,

Regards

Dear Sanjay, no policy can be derived against the law. If it is derived, then it's null and void. From your question itself, everybody can say that you are liable to pay gratuity. However, the payment of gratuity for the last 7 months where he worked in the UK depends upon the agreement between your company and your partner in the UK. This information should be known to the employee, and he should accept it.

Regards, Pragadeesh [Phone Number Removed For Privacy Reasons]

I agree with Shri K. Ramachandra of Bangalore. As per the Gratuity Act, if an employee completes five years of service in an organization, he automatically becomes eligible for the payment of gratuity under the Act. Another feature is that it is not necessary for an employee to request payment of gratuity from his ex-employer. If the company receives any request letter from such an ex-employee, the amount of gratuity is to be paid to him within one month from the date of his resignation. Otherwise, if the ex-employee goes to court for the payment of gratuity, the company will be in trouble. Secondly, if the resigned employee does not make any formal request for the payment of gratuity, even then the company has to make the payment of gratuity within one month from the date of his resignation. In case the company does not have the address of the ex-employee, the amount of gratuity is to be deposited with the concerned government authority.

Regards.

Scenario

An employee has worked for 4 years on the India Payroll, then resigned as per business requirements, and joined the parent company in the UK Payroll for a period of 2 years on contract. After completing the contract, the employee rejoins the India Payroll.

Questions:

1. Will he need to work for 5 years to be eligible to receive gratuity or just for 1 year?
2. Can the employee's experience letter be combined for India, UK, and then again for India experience?
3. If the employee is required to join the parent company in another country due to business requirements, should their gratuity payments be stopped?

Dear Balaji,

The reason why companies show Gratuity as CTC is to have provisions for payment of Gratuity in the event the employee quits the organization. But it does not mean that just because Gratuity is shown in CTC, you need to pay Gratuity even if the employee has not completed 5 years of service.

I trust you are aware that LIC has a Group Gratuity Scheme wherein LIC sends you an actuarial valuation every year based on the salary (Basic + DA) details provided by you. Based on this valuation, LIC requests you to contribute towards the company's Group Gratuity Scheme. Here, the company actually pays the amount to LIC and LIC, in turn, follows the Gratuity rules when they make payments to the employee to the extent the fund is available (paid by the employer). This fund also earns interest as declared by LIC from time to time.

But the best feature here is if you cover all your employees with a marginal risk premium, LIC pays Gratuity till the date of his superannuation even if the employee dies while in service without actually reaching the age of superannuation. In other words, if the employee dies when he is 50 years after rendering 10 years of service in the organization, LIC will pay till his superannuation, say 58 years i.e., 10 years + 8 years = 18 years of service will be paid by LIC, whereas, as an employer, we will actually be paying only for 10 years in such a case.

So the Gratuity act is an independent act and should not be linked with your CTC document. You don't really need any court ruling for this.

Regards,
M.V. KANNAN

Gratuity Calculation Policy

Gratuity calculation must be common to all employees: (Basic + DA) / 26 x 15 days x the number of years of service or part thereof in excess of 6 months. However, if the employer is willing, the number of days can be increased beyond 15 days' wages. If such a decision is made, it must be uniform for all employees, and discrimination among them is not permitted.

Beware! Once you declare such a policy, you cannot retract it at any point in time. Every act states that if the employer introduces a scheme superior to the act, the employer must maintain it.

Regards,
M.V.KANNAN

Dear Venky,

The answers lie very much in your question itself. He has worked for 4 years and resigned. On the last day of working, you will work out the Full and Final Settlement worksheet, which will also include his Gratuity eligibility if any. So, if he has quit after working for 4 years, he will not be eligible for Gratuity.

In the second case, he served for 2 years abroad and rejoins in India. He is a new employee according to you, as he has resigned.

For example, let us look at a different case. An employee has worked in your company for 4 years and for some reason quit. He worked for some other company for 2 years and wishes to rejoin your company, and your company also selects him for re-entry. In such a case, when he left your organization, he would not have received Gratuity. Upon his rejoining, he is treated as if he has joined on that day (new employee).

Moreover, please note that all other Statutory dealings such as PF will automatically be severed once he has quit, but he has the option to continue with the same PF number. The intervening period of 2 years will be considered a break in service as per PF. However, please note that because he has been permitted to continue his PF membership, it does not mean that the employer has to take cognizance of the past employment of 4 years as service rendered by him for Gratuity act.

As regards the experience certificate, please issue separate experience certificates (if he has worked abroad) for the same company and do not combine the experience at different locations, though it is the same company. This will be applicable if he has been asked to resign at each location. This advice is to save you from the claim of continuous service. But if he has been transferred to different locations within India, then the experience certificate will include service at different locations.

Regarding the third question, all the terms and conditions he accepts at the time of his joining at different locations will be binding on him as the rules and regulations of the respective country will be applicable to the employer. It is irrespective of the nationality of the employee. For example, several Multinational companies have foreigners on Indian rolls, and the acts applicable in India will only apply to them, and we will not be able to adopt Statutory provisions of the respective countries as some acts will be far superior in terms of monetary benefits.

Trust matter is clear.

Regards,
M.V. KANNAN

You cannot have company rules that violate laws. In the present context, you are bound to pay gratuity to employees if they are entitled to it as per the Payment of Gratuity Act. Location has no relevance insofar as entitlement for and payment of gratuity is concerned. In the present case, you will have to pay the employee 12 years' gratuity. Since you have asked, let me tell you that your company rules are not legally tenable.

Regards,
Vasant Nair

Thanks for your input, Mr. Dhar. I think large IT companies prefer to add to their bottom line rather than invest in a legal department or have a good HR department. The whole thread speaks about how legal compliance has lost its effectiveness as a deterrent and labor laws lack teeth. It seems any company can come up with anything and call it anything - creativity, you see!

Warm regards.

I want to now participate.

Gratuity as a Social Service

Gratuity is a social service to any employee. It is defined by the central government as THE GRATUITY ACT - 1972. It is applicable to all factories, educational institutes, etc., that are registered under any government office.

Thanks.

Gratuity Eligibility Criteria

Gratuity is a matter of right for an employee as provided by statute. The main eligibility criteria are as follows:

Gratuity shall be payable to an employee upon the termination of his employment after he has rendered continuous service for not less than 5 years. Thus, for an employee to become entitled to the payment of gratuity, he must have rendered continuous service of at least 5 years. The completion of continuous service of 5 years is not necessary when the termination of an employee's employment is due to death or disablement.

Wages for Calculation

Gratuity is calculated at the rate of 15 days' wages for every completed year, as if the month comprises 26 days at the last drawn wages.

Calculation for Piece-rated Employees

At the rate of 15 days' wages for every completed year, on an average of 3 months' wages.

Calculation for Seasonal Employees

At the rate of 7 days' wages for every completed year of service.

Definition of Employee

Employee means any person (other than an apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway company, or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical, or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity. This does not include any person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for the payment of gratuity. All employees are included irrespective of status or salary.

Definition of Wages

Wages mean all emoluments earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or payable to him in cash. This includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages, and any other allowance.

The questions we should look into are:

1. Whether his appointment is by the Indian company?
2. Whether the employee is still on the rolls of the Indian company?

If the answer is "Yes," he is eligible for gratuity for the whole period as per the Gratuity Act. Further to this, if his service was transferred by the Indian company to a foreign company on mutual consent, by his option, or by an order by the employer on administrative or other reasons of your company even after severing his service with the Indian company, he is eligible to get gratuity for his Indian service. If nothing is specified regarding his gratuity eligibility, as per the order/contract for his foreign assignment, i.e., total service minus 18 months.

Regards,
TM

Understanding Employee Gratuity and Legal Obligations

Just like in cricket, when a decision for giving LBW is made by the umpire, the benefit of doubt is given to the batsman. Similarly, when a doubt arises in the mind of the HR professional about providing or denying a benefit to the employee, the benefit of doubt should be given to the employee. Gratuity is a legal entitlement and not gratis, which everyone should note. Unpaid gratuity is covered by Sec 2 (10) of THE BOMBAY LABOUR WELFARE FUND ACT, 1953.

"Unpaid Accumulation" means all payments due to the employees but not made to them within a period of three years from the date on which they became due, whether before or after the commencement of this Act, including the wages and gratuity legally payable but not including the amount of contribution, if any, paid by an employer to a provident fund established under the Employees' Provident Funds Act, 1952 (XIV of 1952).

In Accordance with Sec 3 Welfare Fund

(1) The Administrator shall constitute a fund called the Labour Welfare Fund, and notwithstanding anything contained in any other law for the time being in force or in any contract or instrument, all unpaid accumulations shall be paid at such intervals as may be prescribed to the Board, which shall keep a separate account thereof until claims thereto have been decided in the manner provided in section 6A, and the other sums specified in sub-section (2) shall be paid into the Fund.

(2) The Fund shall consist of:
- (a) all fines realised from the employees;
- (b) unpaid accumulations transferred to the Fund under section 6A.

Sec 7A Deals with Unpaid Accumulations and Claims Thereto

(1) All unpaid accumulations shall be deemed to be abandoned property.
(2) Any unpaid accumulations paid to the Board in accordance with the provision of section 3 shall, on such payment, discharge an employer of the liability to make payment to an employee in respect thereof but to the extent only of the amount paid to the Board, and the liability to make payment to the employee to the extent aforesaid shall, subject to the succeeding provisions of this section, be deemed to be transferred to the Board.

The impression that when a person is terminated, resigns, absconds, or severance takes place, or does not claim his dues, the employer can appropriate the amounts due to the employee is not the correct approach. These are in the nature of their entitlement. What the employee can deduct at the maximum is notice pay if proper notice is not given.

Because the employment market is vibrant and employees, as they are being rewarded more, are not bothered about their past entitlements. Employers, by way of ethics, should not take advantage of the situation.

Please note it is the employees' money which is in the employers' hands. Such amounts must be immediately transferred to the unpaid Salaries Account and, after three years, deposited with the Welfare Fund.

The above is the essence of statutory compliance, and what is not the employers' money but the employees' cannot be retained or illegally enriched.

Regards,
Advocates & Notaries & Legal Consultants [HR]

[Email Removed For Privacy Reasons]

[Phone Number Removed For Privacy Reasons]

Hi all, I studied all the lines of this post. Mr. Rajkumar, I would suggest you please go through the Payment of Gratuity Act properly before answering. Please take it in a positive way... Ok.

Mr. Surendra M. Bhanot and K. Ramachandra answered perfectly.

Regards,
Amrita Mishra/Sachin Lala
CA/HR Manager-Compensation & Benefits

My dear Amritamishralala,

I welcome you to CiteHR.com and look forward to a long, fruitful association with you. I appreciate your spirit and emotions.

Clarification Needed

Which post are you referring to? There are two posts in this thread. I wonder how all the learned members have not taken cognizance of the error in my post, as pointed out by you!

Dear friend, your remarks remind me of an incident that took place some years back. I was at the company lawyers' office as he was talking to another visitor, "I think your HR dept. has gone to the zoo!" The other person could not understand this remark. The renowned lawyer turned to me and asked, "Did you understand what I meant?" I also said, "I am sorry, Sir, I really have no idea what you are talking about." He then explained, "What I wanted to say was that the department has gone to the dogs. But since it would not sound nice, I said it has gone to the zoo."

The moral of the story is: At times, things are not stated in plain English, but one has to read "between the lines."

There are times when satire, sarcasm, dryness, mockery, causticness, wit, sardonicism, dramatic irony, etc., are used in writing (and in English literature/composition).

I did not want to publicly embarrass our member Sanjay_n, whose company is not paying gratuity to people who have rendered more than 11 years of service, on one pretext or the other. Hence, I used apparently inoffensive language, coaxing him to come out with more information/disclosures, and to make him understand that it is neither fair nor legal. (For obvious reasons, he chose not to reply to my queries).

However, I think unlike other experienced members who were able to understand what I am implying, you as a new member, were unable to fathom it. I request you to kindly re-read my post again, without rushing through it, and try to understand what I actually wish to convey; and you'll find that nothing has been recommended by me, which is contrary to the provisions enshrined in the Payment of Gratuity Act 1972.

I have taken your statement in a positive way and I would also request you to do the same. There are many things in life which are not "instant" or "fast" like noodles, food, or coffee; and they need to be chewed, enjoyed, and digested... slowly.

Warm regards.

Gratuity Payment Based on Legal Entity

On the basis of the legal entity of the company, we can discuss gratuity:

• **1st:** If you have been recruited in India by an Indian company, your company is liable to pay gratuity to employees who have completed 5 years of service.

• **2nd:** If you are transferred to the UK, the liability for gratuity payment depends on the company or branch:

1) If you have been deputed or transferred to the UK based on your current appointment in the Indian company, then you are not liable for gratuity payment until resignation.

2) If you have been transferred to the UK to work in your subsidiary or any company under your control (name change) which follows the rules and regulations of the UK, you are liable to pay gratuity in the Indian company if the employee has completed 5 years of service.

Regards,
Mohan

Dear Rajendra, this is a government rule/act. The company is liable to pay gratuity to employees who have completed 5 years of service.

I just want to know if gratuity is a part of CTC and if the employee does not complete 5 years of service and resigns, then is that deducted amount payable to him? Is this supported by any evidence or court? Please share your views on this, as a lot of companies are showing gratuity as a part of CTC.

Regards

Gratuity Calculation According to the Gratuity Act

As per the Gratuity Act, 6 months and above are to be treated as a complete year. Hence, 6 years, 6 months, and 20 days are to be treated as 7 years.

Regards,
JR Kumar

Ramachandra has clearly clarified your concerns, and I completely agree with him. In addition to this, I want to share my opinion on Gratuity. An employee who has completed 5 years of continuous service is eligible for Gratuity. There is confusion regarding the eligibility criteria due to a recent court order citing that an employee who completes 4 years and 240 days is eligible. If this is the case, it is not an amendment in the law. Unless there is an amendment, completion of 4 years and 240 days cannot be considered as a practice but can be implemented if an employer retrenches an employee during that period.

I welcome experts' thoughts.

Regards,
Sughumar. R. K.

Dear Sughumar R K,

Gratuity Calculation: Understanding the Yearly Basis

A year means it is always 365 days, even for gratuity calculation. For the first eligibility, it is a clear 365 x 5 (years) days. The 240 days are generally taken as working days for Earned Leave (EL) eligibility in many companies, and the Gratuity Act does not specify considering 240 days. As you mentioned, considering 240 days could be a specific case on specific grounds. Anytime before making a decision, companies have the option to seek a legal opinion from their company Legal Advisors. Otherwise, it will always be legal to consider 365 days x 5 for the first eligibility. I hope everyone agrees with this.

Regards,
K. Ramachandra
Bangalore

Mine is a similar case where I had completed 5 years of employment with an Indian IT company. The project required me to go onsite to Europe to coordinate the project during my last 1 and a half years. So, I was given a secondment contract and payroll transfer to Europe. I decided to quit my organization onsite after 5 years of employment.

Nowhere in the contract or company documents does it mention that you will be deprived of your gratuity amount after working onsite. One of the HR persons talked to me on the phone, stating, "You will not receive the gratuity since you were working onsite." However, he also agreed that it's nowhere mentioned in any contract. So, I asked them to mention the same in writing in an email.

Could you confirm whether I am eligible for Gratuity? Could you also guide me on how to proceed further if they decline to pay me the Gratuity amount?

Only if you can let us know the contract and its terms and conditions, it would be clear to give proper guidance. If it is not confidential, you may post it.

Regards,
K. Ramachandra
Bangalore

Thank you so much, K. Ramachandra, for your reply. Today, I spoke to my ex-employer's HR who told me that "As per the process, since I have resigned on-site, I would not be eligible for gratuity." However, nowhere in the contract or SOPs was anything about gratuity stated.

Kindly help me with the channel to follow later.

Contract Details

In my contract, the following points were mentioned:

Duration

The assignment will be for an initial period of 3 months. Should there be changes to business requirements by accepting this assignment, you agree to changes to your secondment including but not limited to:
- Changes to the duration of the assignment
- Transfer to another client account subject to immigration papers being in place
- Returning to your place of work in India

Amendment

All the above terms are as per our current policies and practices and may be amended from time to time. You will be informed of any amendments and will be governed by the changed rules of the company. While on deputation, you will continue to be governed by all other service conditions and rules of the company as framed from time to time.

I also had an Employment Contract as per Danish laws for the Work Permit. Currently, I am working in Denmark.

Regards,
Francis

Dear Mr. Francis,

Based on the details given by you, you may take the following actions:

Understanding Gratuity Eligibility

The contract points indicated by you are general in nature and do not specify the monetary benefits payable to you (including gratuity). Payment of gratuity need not be indicated in the appointment letter. But the question is, were you taken on as an employee by the company or otherwise (what was your designation)? Anyway, from the brief points you have indicated, the following points should be noted and action can be taken:

1. Since you have completed 5 years, you will be eligible for gratuity.

2. If you are employed on the company rolls, you ought to receive your gratuity. Nobody can stop this and say no to you.

3. If you are hired for a specific project as a consultant/advisor, you will not be eligible for gratuity.

4. You may raise this issue with your employer and the government authority.

5. Write a simple letter to your company indicating the service details, period of work, etc., and requesting the gratuity amount.

6. Wait for a reply - maybe 15 days.

7. If there is no reply or a 'no' comes from your ex-employer, you may write a letter to the Gratuity Authority (Assistant Labour Commissioner of your area) with a copy of the letter written to the company. In case the company is covered under the Central Gratuity authority, there will be a different office controlled by the Central Government for Gratuity in your area (take an acknowledgement from the office).

8. The gratuity authority will send a notice to the company based on your letter and call for records and will take the necessary steps.

Hope this information is helpful.

Regards & Best Wishes,

K. Ramachandra

Bangalore

Hi All, I worked for a leading IT service company in Bangalore for 5 years and 9 months, and I'm currently in the notice period. After 3.5 years in India, I was transferred to the U.S. on a work permit with the same company and returned to the same Indian company after 1.5 years. My Indian CTC also includes Gratuity.

According to my company policies, only Indian service is considered for Gratuity. I believe I will not be paid Gratuity even though I served the company for close to 6 years. My relieving letter states continuous service for 5 years and 9 months.

I am uncertain whether Gratuity is fully governed by Government labor laws or partially influenced by companies, as some companies pay for only 3 years of service.

I am surprised by my company's policy of not paying Gratuity after serving nearly 6 years. I did not go to Onsite on my own wish or for any vacation.

Please share your experiences and any advice on the course of action.

Thanks,
Mohan

Dear Mohan, you are undoubtedly eligible for gratuity; you have worked for an Indian company, and the company cannot make its own rules to deny gratuity. As long as you are on the rolls of your company and unless your services are terminated, the company cannot say that only for the period you have worked in India, you will be paid gratuity. Please clarify whether the work permit or transfer happened while keeping you on the rolls of the company, or if your employment was terminated and then you were issued a fresh letter. As long as it is a transfer, for gratuity, it will be considered continuous service, and the company will have to pay gratuity. Remember, the Gratuity Authority is always there to help you!!

Regards,
K. Ramachandra
Bangalore

I am afraid you have got it wrong. An employee who has put in 240 days of continuous service in a year in an organization is entitled to payment of Gratuity under the provisions of the Payment of Gratuity Act. Under no labor law, "365 days" are taken into consideration for ascertaining entitlement to any kind of benefit. Please read your basic books on Labor Laws carefully.

Best Wishes,
Vasant Nair

Hi Ramachandra & All. I looked back at my deputation letter, and it clearly states it as a Transfer letter. However, they also mention that Gratuity will not be covered. In the relieving letter, I see 5 years 9 months without a break in service. My company is not responding to my queries now.

Transfer Letter Details

This is what I see in my transfer letter:

"We are pleased to inform you that you are being transferred on an assignment to the USA, beginning the day you land in the U.S under the following terms and conditions:
- For the purpose of calculating gratuity, only the period of service in India will be considered for accounting purposes.
- You will be covered under the US payroll from the day you report to work in the US. Your India salary components such as Basic, FP, Gratuity, PF, etc., will be stopped from this date."

Thanks,
Mohan

Hi all, Is the Gratuity Act applicable to all companies or only those with a minimum number of employees? Is it the same as PF?

Regards, Sajith

Dear Sajith, We are required to go through section 1(3) of the Payment of Gratuity Act to see its applicability, which may be read as under:

Applicability of the Payment of Gratuity Act

(3) It shall apply to:

- Every factory, mine, oilfield, plantation, port, and railway company;
- Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
- Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.

Regards,
R.N. Khola

Gratuity Eligibility Based on Employment Conditions

The gratuity is paid based on employment conditions and continuous service. In your case, the transfer letter states that your employment ceases with the Indian company, and the conditions of salary and benefits also cease. You will be on the payroll of the US company, and thus, your salary components also change. With this background, I feel that you will be eligible for gratuity only until you were with the Indian company.

It is only for the service certificate, or you can say, experience certificate, that the company has given a certificate stating you have had 5 years and 9 months. Perhaps the company should have issued a certificate stating the period you worked in the Indian company from... to... and in their US company from... to.... Since the transfer letter clearly indicates a break in the terms of your employment during the transfer, I believe the gratuity will not apply for the period you worked in the US, as the Gratuity Act is applicable only in India. Although you have continuous service of 5 years and 9 months, it is not entirely in India.

Hence, I think it would be right for you to receive gratuity only for the service rendered in India. If there is any ambiguity in this opinion, it would be better to approach the Gratuity Authority.

Regards,
K. Ramachandra
Bangalore

Dear Mr. Vasanth Nair,

I reproduce below the relevant portion of Sec. 2A of the Gratuity Act regarding continuous services:

The Payment of Gratuity Act, 1972

For the purposes of this Act:

1. An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing order, rules, or regulations governing the employees of the establishment), lay off, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

2. Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer:

(a) For the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than:

- (i) One hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
- (ii) Two hundred and forty days, in any other case.

Please read the above clauses once again and particularly please read clause 2(a) which says that during the period of 12 months preceding..., the person should have worked for 240 days. There are two things you have to understand: when we say continuous service, for CALCULATION PURPOSE, we have to ensure that the person has worked for 240 days during these 12 months. If not, he will not be eligible for gratuity. The Act does not say in a year we have to take 240 days only! I repeat, it is for CALCULATION and not to be misunderstood as only 240 days per year. The person has to be on rolls for 365 days and may be absent, sick, or otherwise, but if he has worked for 240 days, it would be treated as continuous service and there is no break in service.

Regards,

K. Ramachandra

Bangalore

Gratuity Eligibility Based on Employment Location

Hello Ramachandra, In my case, will the company be able to pay gratuity for 4 years of service in India, excluding the service in the US (1 year 8 months), considering an overall service period with the company of 5 years and 9 months? Or is it purely based on the company's by-laws, and they will honor gratuity only if the service in India is 5 years or more?

Thanks, Mohan

Is gratuity entitled to an employee during long leave or on sabbatical?

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Hello,

Gratuity is a payment made by an employer to an employee for services rendered over a certain period. It is typically provided when an employee resigns, retires, or is laid off. However, the entitlement to gratuity during long leave or sabbatical can vary depending on the company's policies and the applicable labor laws.

In some cases, employees may continue to accrue gratuity benefits during authorized leaves of absence, while in other situations, the accrual may be paused or affected by the duration of the leave. It's essential for employees to refer to their employment contracts, company policies, and relevant legislation to understand their entitlement to gratuity during extended leaves.

If you have any specific concerns regarding gratuity entitlement during long leave or sabbatical, it would be advisable to consult with your HR department or legal counsel for clarification.

I am in a complex situation where I worked for a company for 7 years in India, and then they sent me onsite for 5 years with the condition that gratuity would continue in India. They transferred my payroll to its UK branch. They kept issuing me increment letters about an increase in the basic rate in India with the condition that if I rejoined in India, the basic would be increased.

I worked for 5 years in the UK, resigned there, and did not go back to India. Now the company wants to give me gratuity for 12 years (7 in India and 5 for onsite deputation) based on a calculation using my basic salary from 5 years ago, not the incremented basic. They claim that since I never rejoined in India, they are using the basic salary from my last year. In my understanding, they should have considered the payable basic, even if it was the last basic paid in the UK (although there is no basic component in the UK payroll, only Gross).

Regards, Sannu