Am I Still Eligible for Gratuity If My Last Workday Is Before My 5-Year Mark?

Hi, I joined my current employer on Jan 2, 2006, and I resigned on Nov 4th with a 2-month notice period. My last date at the office should be Jan 03, 2010, but my employer has made Dec 31st my last day at work.

1) If I get relieved on Dec 31st, would I be eligible for gratuity since Jan 1st is a holiday for my employer? Jan 1st is the day on which I complete 5 years of service.

2) Since I am getting relieved a day earlier at my employer's discretion, would I still be eligible for gratuity?

I don't think that there is room to worry regarding eligibility for gratuity.

Abbas.P.S

According to the new amendment, the maximum gratuity exemption as per the IT Act increases to Rs. 10,00,000.

Determination & Calculation of Gratuity Amount

• For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.

• In order to compute the gratuity payable in the case of employees, it can be formulated as follows: Basic + DA (Wages Last drawn) * 15 days / 26 * number of years of continuous service (six months or less to be ignored and more than six months to be counted as a full year).

In your case, you can avail the benefit of gratuity.

Regards,
Siji K Joy
Pune

Gratuity Eligibility Clarification

Perhaps you have given the wrong reason to calculate the gratuity. Firstly, you must have worked for five continuous years of service. Thereafter, you are eligible for the sixth-year benefit if you have worked for more than six months. But in the case of Firoz, he is entitled to gratuity because even if there is any ambiguity in the days of his fifth year of working, he must have completed 240 days in his 5th year. It is a decided case that if an employee has completed 240 days in the 5th year, he is entitled to gratuity.

Thanks,

Regards,
L M Sharma
[Phone Number Removed For Privacy Reasons]

I do not agree with your opinion as the mentioned criteria are for calculation purposes only, not for determining eligibility. For eligibility purposes, you must complete five years of service. According to the condition mentioned above, you must be in a role on your completion day.

Regards,
Dinesh Adikane
Deoli, Wardha.

Hi, my understanding about gratuity is that it requires the completion of 5 years of continuous service. A decision by the Chennai High Court states that employees are eligible for gratuity even if they have completed 4.8 years (calculated as 240 days if worked in a year, which is considered completion of one year).

In view of this decision, I believe the employee is eligible for gratuity even if the organization disputes it.

Regards,
Nimesh Paul

Calculating Gratuity:

a) If you are covered under the Payment of Gratuity Act, 1972:

Gratuity will be = wages * 15/26 * years of service.

Here, wage refers to basic salary plus dearness allowance. Take the monthly salary drawn by you last (basic + dearness allowance) at the time of resignation or retirement. Divide this by 26. This gives you your daily salary. Multiply this amount by 15 days, and further by the number of years of service you have put in.

For computation of gratuity, your service period will be rounded off to the nearest full year. Thus, in your case, service will be treated as five years.

b) If you are not covered under the Payment of Gratuity Act, 1972:

For non-government employees who are not covered under this Act, the manner of calculating gratuity is different.

First, the average salary is calculated: for this, the average of the last ten months' salary is taken (this will include the basic plus dearness allowance plus commission as a percentage of turnover achieved by the employee). Divide this average salary by 30 (ignore fractions). Now, multiply this amount by 15 and further with the number of years of service put in. Dividing the daily salary by 30 instead of 26 does put those not covered by the Gratuity Act at a disadvantage.

Formula: Gratuity shall be calculated as per the following formula:

Gratuity = Last drawn salary x ½ x No. of years of service

For computation of gratuity, your service period will not be rounded off to the nearest full year. While calculating completed years, any fraction of the year will be ignored. Thus, your service will be treated as less than five years and is not entitled to gratuity.

Regards,
ISHER KUMAR ARORA

Gratuity Eligibility and Legal Rulings

Though there is a ruling by the Chennai High Court that even if an employee has worked for 240 days in the 5th year, he is eligible for Gratuity, the ruling is still debatable as some organizations follow it and some don't. As per the law, it is 5 years of continuous service without a single-day break.