Is My Employee in Bangalore Entitled to Gratuity After Resigning Due to Project End?

I have a question regarding gratuity.

I have an employee who joined us on April 3, 2006. As our project is ending, we have asked him to resign. I would like to know if he is entitled to gratuity. This is for a company whose corporate office is in Bombay, but he is working in Bangalore.

Thank you.

If you follow the Payment of Gratuity Act, he may not be entitled to get gratuity. However, since he has already completed four years of service and you are sending him out before the project comes to an end, your act of demanding or even requesting his resignation shall only be treated as an effort to avoid payment of gratuity. That will not be allowed, and the notice period to which an employee is entitled shall be counted as service. If so, he will be entitled to gratuity. I hope you have a notice period clause in your appointment order served to the employee stating that the employee should serve a one-month notice if he wants to leave, and if so, that clause is applicable to you as well.

As the project has not come to an end, and there was no predetermined date of the contract's expiry with the employee, your request to the employee to resign shall also mean that you are terminating or retrenching his service. If so, you are liable to pay him retrenchment compensation at the rate of 15 days' salary for every completed year of service, which amounts to five years. On the other hand, if he serves the full tenure of the contract and is terminated upon completion of the project, you need not pay retrenchment compensation.

Either gratuity or retrenchment compensation is a must. Both amounts are almost equal, but gratuity will be slightly higher since it is calculated based on an average salary for 26 days, whereas retrenchment compensation is based on 30 days. The risk is that if you retrench him now and the employee approaches the Payment of Gratuity Authority, they may rule that gratuity should be paid. If so, your liability would be doubled.

Regards,

Madhu.T.K

Dear Mr. Madhu Ji,

To the best of my knowledge and belief, the condition for completion of 5 years of service for gratuity eligibility does not apply if the employer shuts down the business or if the project is completed before the employee finishes five years of service. May I therefore request you to please check this afresh and confirm the correct position of the law?

Thanks and regards

In any case, if an employee's gratuity is to be calculated, and he/she has completed 4 years and 6 months of continuous service in which a minimum of 240 days should have been worked, it is to be considered that an employee has completed 5 years of service to be entitled to gratuity. The gratuity is payable on the basic plus DA if there. Since you are asking to resign, you ought to pay if you do not want to create any legal entanglements.

Payment of Gratuity Act has no provision to exclude an establishment set up for a particular period. I am not sure if there is any case law governing the matter. Anyway, let us wait for some more inputs.

Dear Pankaj, A fraction of a year for more than six months is taken as one year; but that is for calculating the amount of gratuity and not for deciding eligibility, for which completion of 5 years is mandatory. Even in the Mettur Beardsell's case, the Madras High Court's verdict was based on the fact that the concerned employee had worked for 240 days in the fifth year. Therefore, even if you follow that case, it is necessary that the employee should have worked at least for 240 days in the fifth year and in a period of six months, it is not possible to work for 240 days.

Regards, Madhu.T.K