Gratuity Dilemma: Do Employers Need to Pay for Less Than Five Years of Service?

Is it mandatory for an employer to pay Gratuity even though an employee has not completed five years of service? We have a case where an employee worked for 4 years and 10 months. Please guide.

Thank you.

Regarding eligibility for gratuity, an employee qualifies when they complete five years of service and have worked at least 240 days in each year. In your case, if the employee has worked more than 240 days in the last year, they are eligible for gratuity payments.

Thank you.

If he completed the eligibility, then it is mandatory to pay. If not completed 240 days in the last year after working for 10 months, then it also depends on the reason for leaving the job, whether it was resignation or termination.

Regards,
Amit

Thank you for sharing the information with us. I would like to request clarification on the following:

Calculation of Working Days

- 365 Days in a year
- 104 Sat & Sun (Weekly off)
----
- 261
- 37 Holidays + CL + SL + PL
----
- 224 Actual working days

In the above scenario, is gratuity payable if an employee has worked for 4 years and 10 months? Please advise.

Looking forward to your response.

Regards,
Ashok More

[QUOTE=amit_gud;1457704]Dear All,

Is it mandatory for an employer to pay Gratuity even if an employee has not completed five years of service? We have a case where an employee worked for 4 years and 10 months.

Please guide.

Dear Mr. Amit,

As per the judgment of Mettur Beardsell Ltd., Madras V/s Regional Labour Commissioner (Central), Madras & Others, if the employee has worked for 240 days in the 5th year, he will be entitled to Gratuity.

Regards,
Anil Fernandes

I have been working for the last 6 years. Our PF coverage started in April 2005. What liabilities are generated for gratuity, and how can it be calculated?

Please provide information on the basic and DA fixed by the management on the date of the last working day.

Koparde

Please note that to be eligible for benefits under the Payment of Gratuity Act, you should complete 5 years of continuous service.

Regards,
Koparde

Subject: Eligibility for Gratuity

Hi Amit, please refer to the ruling mentioned herein for your query. The Madras High Court has held that an employee rendering continuous service for a period of 240 days in a year, i.e., in the fifth year, will be deemed to have continued in service for one year as stipulated by Sec. 2A of the Act and is thus entitled to Gratuity (1998 LLR 1072 (MAD HC) in Mettur Beardsell Ltd v/s Regional Labour Commissioner, Controlling Authority under POG Act 1972).

For any further information, please do not hesitate to contact.

Thanks and regards,
RL Dhingra, Advocate
Labour Law Consultant
Mob: [Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]

Gratuity Eligibility and Service Period Calculation

While computing the qualifying service period of an employee for the purpose of gratuity, any period over and above 6 months is to be rounded off to the next full year. Thus, a total of 4 years and 10 months would round off to five years, making the employee eligible for gratuity.

Thanks and regards.

Gratuity Entitlement Conditions

In the case given by you, the employee is not entitled to gratuity because the minimum qualifying period for entitlement to gratuity is 5 years or more of uninterrupted service (section 4(a)). Secondly, section 2(a) also needs to be read for continuous service. Only if the employee fulfills the basic qualifying conditions for gratuity will they be entitled; otherwise, not.

If you have in mind the sentence "For every completed year of service or part thereof in excess of six months," this is provided in section 2(b), and this provision is applicable for the subsequent period once the employee fulfills the qualifying period.

Regards

Gratuity Payment Under the Payment of Gratuity Act, 1972

As per the Payment of Gratuity Act, 1972, Section 4(3), the amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand rupees. However, the Gratuity Amendment Act, 2010 (Gratuity Calculation and Payment) raised the gratuity limit from 3.5 lakhs to 10 lakhs.

Eligibility Criteria for Gratuity

According to Section 2A of the Payment of Gratuity Act, 1972, if an employee during the period of twelve calendar months has actually worked under the employer for not less than:

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

Determination and Payment of Gratuity

Section 7 of the Payment of Gratuity Act, 1972, provides for the determination of the amount of gratuity. Under sub-Section (1), an eligible employee under the said Act has to make a written application, while sub-Section (2) makes it binding on the employer to determine the amount of gratuity and specify the same to the controlling authority, even if such application is not made. The mandate of sub-Section (3) is to make the payment of gratuity within 30 days of the date it becomes payable to such eligible employee. Section 3A provides for the interest where gratuity is not paid within the prescribed period.

In your case, if the said employee worked more than 240 days in the 5th year, then he is eligible for gratuity payment subject to uninterrupted service, and he shall be deemed to be in continuous service.

Relevant Supreme Court Cases

Some important Supreme Court cases relating to this issue are:

- Grand Kakatiya Sheraton ... vs Srinivasa Resorts Ltd. & Ors. on 27 February 2009
- Bakshish Singh Vs. Darshan Engineering Works & Ors
- M/s. British Paints (India) Ltd. Vs. Its Workmen reported in 1966 (2) SCR 523
- Straw Board Manufacturing Co. Ltd. Vs. Its Workmen reported in 1977 (2) SCC 329.

Regards,
Zahid Khan
Corporate Legal Consultant
[Phone Number Removed For Privacy Reasons]

Dear All, If an employee resigns just 2 months before completing 5 years (let's say he has not worked for 240 days), but he works for another 3 months as a notice period, will he be eligible for gratuity and superannuation? What would be the criteria for these benefits - the date of resignation or the final day of working?

The last working day is the criterion for the computation of gratuity, not the date of notice. Qualifying service would be counted until the last day of working. Superannuation is different; it refers to reaching the age of retirement, either 58 or 60 years of age.

Thank you.

Dear Ajay,

The last working day is the criterion for the computation of gratuity, not the date of notice. Qualifying service would be counted until the last day of working. Superannuation is different; it is reaching the age of retirement, either 58 or 60 years of age.

Thanks a lot for the clarification. Regarding superannuation, my appointment letter states as follows: "Benefits of the scheme will be available to an employee only on completing a minimum continuous service of 5 years with the Company."

Questions on Superannuation Benefits

Can I withdraw after 5 years or opt to avail the benefit at my retirement age? Does the rule of 240 days in the fifth year apply here for eligibility?

Sorry if I am diverting from the forum topic.

Regards,
Ajay

Dear Shri Ajay Ji, please let me know the dates of your appointment and the date of relief (last day of working) and also your last pay (basic plus dearness allowance if any), and I will tell you the amount of gratuity you are eligible for. Please file a claim for payment of this gratuity, and in due course, you will receive it from your former employer. In case of a delay beyond 30 days from the date of filing your claim, you are also eligible for simple interest on the amount of gratuity. The notice period served and time actually spent on duty are also eligible for terminal benefits; it is part of your services in that firm. If you have taken up an assignment elsewhere, you may get your provident fund transferred to the new employer. With PF, your pension account would also be transferred to the new EPFO office.

Regards,

Gratuity Eligibility Based on Court Judgment

The court judgment states that a person should work 240 days in the fifth year. If the company operates on a 5-day workweek, for example:

- 304 days in a year (January to October)
- 96 Saturdays & Sundays (Weekly off) (January to October)
----
208
22 Holidays - 10 + CL - 6 + SL - 6 + PL - (15 not used)
----
186 actual working days in the 10 months of the fifth year.

If a person has completed 4 years and 10 months in the fifth year, then gratuity is payable in the above case. Please revert.

Regards,
Ashok More

Please find attached the Judgment of Madras High Court in this regard.

Regards,
Anil Fernandes

I worked at a Ltd. organization for 4.8 years, which is equivalent to 4 years and 252 days. However, my HR is informing me that providing gratuity for less than 5 years and more than 4.8 years depends on the relationship between the employee and the employer. Is this true?

Thank you.

Please let me know the location/State where you work. If you are from Tamil Nadu and have completed 240 working days in the 5th year, you will be entitled to receive the Gratuity as this judgment primarily binds all the organizations situated in Tamil Nadu.

Regards,
Anil Fernandes

Hi Anil, I am working with Org... in Andhra Pradesh. My start date is November 10, 2006, and my end date is July 22, 2011. Could you please provide me with the information I requested?

Thank you.

You will not be entitled to Gratuity as you have not completed 240 working days in the 5th year.

Regards,
Anil Fernandes