Am I Eligible for Gratuity if I Resign Just Before Completing 5 Years?

Hi,

I am Manivel, working for an MNC company in Bangalore for the past 4 years and 8 months. I will be resigning from my position in another 2 months. Therefore, I will only have completed 4 years and 10 months in this company by the time I am relieved.

Will I be eligible for the Gratuity? Please clarify.

Thanks & Regards,
Manivel Natarajan.

Dear Manivel Natarajan,

FIVE YEARS SERVICE FOR GRATUITY

Is it necessary that an employee must have worked for five years in order to claim gratuity under the Payment of Gratuity Act?

Yes. The minimum period for becoming eligible for payment of gratuity is continuous service of not less than five years, and hence it should be complete five years. The words 'or part in excess of six months' are only meant for the purpose of computation of gratuity. Where in one case, the employee has worked for 4 years 11 months and 10 days, it has been held by the Andhra Pradesh High Court that he will not be eligible for gratuity for want of completion of five years.

Reference:

P. Raghavulu & Son VS. Addl. Labour Court Andhra Pradesh, Hyderabad and another, 1985-1 LLN 612.

Source: [The Payment Of Gratuity Act, 1972: Expects clarifications with Case Laws reference](http://paymentofgratuityact1972.blogspot.com/2010/07/expects-clarifications-with-case-laws.html)

KVJ Raghunath

Thank you for your important comments. I was also confused about the 5 years continuous service condition. It would be very helpful for us if you could send us the judgment of the High Court.

Thanks,
Suresh Adav

Hi,

It depends on two things:
1. What is the period specified in your offer letter (some companies pay gratuity even after completing 1 year).
2. Some companies do pay gratuity even if the employee has completed more than 4 years and 6 months. So it's better to check with your organization about the policy. If you are leaving on good terms, you have a chance of getting the gratuity.

Thanks,
Anand

But I think you are eligible for gratuity if a person completes 4 years and 240 days, then he is eligible for gratuity because the Factories Act considers 240 working days equal to one year. This means in a year, you are required to work 240 days. In that view, if any employee completes 4 years and 240 days in the current year, then he gets gratuity. This amendment was made by the Madras High Court and became effective in the year 2005.

Rajiv Singh

Hi,

It depends on company policies. You are logically right about the period of service, that is 4 years and 8 months eligibility. The law clearly stipulates the conditions under which gratuity is payable to an employee who quits before the gratuity period of 5 years. Gratuity is one type of reward system. By its nature, it is meant to be a rewarding system provided it is given for a minimum period of time. If you are leaving on good terms, you have a chance of receiving the gratuity from your organization.

Bashir

Thanks

Dear Manivel,

The very important point is missed out here. As per Section 4(1) of The Payment of Gratuity Act, 1972, the completion of five years of continuous service is a must. It cannot be reduced to anything less than five years. Section 4(2) of the Act makes it necessary to round up the completed months to more than 6 months to one year. This clause or section is related to the calculation only and not the eligibility.

For example, if you complete 5 years and 7 months of service, then in such a case, the gratuity will be calculated for 6 years. However, the law does not provide any concession for the eligibility criteria of completion of 5 years. I do not deny that the company, out of good relations with the employee, can pay gratuity even if the employee worked for 2 to 3 months less than 5 years. However, in such a case, it is the employer's choice and goodwill and not the employee's legal right to claim it.

Since we are talking about gratuity here, I have a question of my own. I will complete 5 years on 31st May 2011 in my current organization, and my salary is credited on the 25th of every month. If I resign on 1st June 2011, will I be eligible for gratuity?

Thanks.

Eligibility of Employee's Dependent for Gratuity

Is an employee's dependent eligible to receive gratuity in the event of the employee's death, even if the employee has not completed the mandatory 5 years of service with the company?

Yes, you are eligible for Gratuity. Please read the Judgment of Madras High Court mentioned below:

1998 LLR 1072
MADRAS HIGH COURT
Honorable Mr. S.M. Abdul Wahab, J. W.P. No. 21350 of 1987 Decided on 12.6.1996

1. Mettur Beardsell Ltd. (represented by its Personnel Manager), Madras
vs.
Regional Labour Commissioner (Central) (Authority under Payment of Gratuity Act).
Madras & Others

PAYMENT OF GRATUITY ACT 1972 -
Sections 2(a), 2(b), 2(c), 2(e, and 2A -
'Continuous service' - Qualifying period of service by an employee - Entitlement of Gratuity - An employee rendering continuous service for a period of 240 days in a year will be deemed to have continued in service for 'one year as stipulated by section 2A of the Act - Thus, an employee who has put in service for 10 months and 18 days for the fifth year subsequent to the first 4 years should be deemed to have completed continuous service of five years - His claim for gratuity is tenable.

The answer to your query is "NO." Even if you work for 4 years, 11 months, and 10 days, you will not be eligible for gratuity.

I am agree with Mr.Rajiv
MADRAS HIGH COURT JUDGMENT On Payment of Gratuity Act ,1972 ......
Sections 2 (A ) –Qualifying period of service by an employee Entitlement of Gratuity –An employee rendering continuous service for a period of 240 days in a year will be deemed to have continued in service for one year as stipulated be section 2A of the Act –Thus an employee who has put in service for 10 months and 18 days for the fifth years subsequent to first 4 years should be deemed to have completed continuous service of five years .His claim for gratuity is tenable.
If you are in this Judgment as per my knowledge you are eligible for gratuity .
Regards
Krishna naik

Rajiv is right. According to the Factory Act, an employee is eligible for gratuity if he/she has completed 4 years and 240 working days. If you have completed this requirement, you are legally eligible and can approach the labor court if they deny giving you your gratuity amount.

All the best.

Regards, Salman

Good question. The dependents of employees are eligible to receive the gratuity amount in the event of the employee's death. Therefore, we should ensure that Form F (Nomination) under the Payment of Gratuity Act is collected.

Dear All,

Regarding gratuity:

1. If the employer calculates the employee's gratuity as part of their Cost to Company (CTC) and issues a letter to the employee, then the employee will definitely receive gratuity, regardless of the service period.

2. If the employer does not calculate the gratuity as part of the CTC, then the service period becomes a major factor in the calculation of gratuity.

Thank you.

Dear All,

The eligibility for Gratuity is 4 years and 240 working days subject to the following conditions:

1. Sundays, public holidays, CL, and SL will not be considered for calculating 240 working days.
2. Any earned leave enjoyed, maternity leave, and days of lay-off (if any) will also be considered while calculating 240 working days.

Regards,
Manoj Thakur

Gratuity Eligibility in Case of Death

In case of death, the condition of 5 years is not applicable. If the employee dies before the completion of 5 years, their nominees can receive the gratuity amount.

Regards

MEANING OF CONTINUOUS SERVICE UNDER THE ACT

The term 'continuous service' has been controversial ever since the Payment of Gratuity Act came into force in 1972. In one case, the Supreme Court has also interpreted the term which has led to the amendment of the definition by the Amended Act 25 of 1984 whereby a separate section 2-A defining continuous service was added. Again by an Amending Act 22 of 1987, the amendment was made in the definition. In order to determine as to what continu¬ous service means it is imperative to reproduce section 2-A defining continuous service which reads:

(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 break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), layoff, 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 the Act;

(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (i) 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 employer during the period of twelve calendar months preceding the date with reference to which calcula¬tion 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 an establishment which works for less than six days in a week; and

(ii) two hundred and forty days, in any other case.

(b) for the said period of six months, if the employee during the period of six 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) ninety five 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) one hundred and twenty days, in any other case.

Explanation: For the purpose of clause (2) the number of days on which an employee has actually worked under an employer shall include the days on which-

(i) He has been laid off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 ofl947) or under any other law applic¬able to the establishment;

(ii) He has been on leave with full wages, earned in the previous year.

(iii) He has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

(iv) In the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks).

Where 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 for such period if he has actually worked for not less than seventy five per cent of the number of days on which the establishment was in operation during such period.

Source :The Payment Of Gratuity Act, 1972: Expects clarifications with Case Laws reference

KVJ Raghunath

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You are eligible to receive gratuity since you will be completing 4 years and 10 months. According to the rounding off rules as per the Gratuity Act, service of more than 6 months is rounded off to the next year. In your case, you are eligible for gratuity.

Regards,
S. Nagasubramanian

Yes, I completely agree with Rajiv Sir. If the employee has worked for 240 days, he should be deemed to have worked for a year. In this case, you should be eligible for gratuity.

Dear HR Fraternity,

Mr. Manish Gadre is absolutely correct. One of our friends has given his own opinion that completing 240 days in a year is deemed as one year. Yes, as per the Permanent Status Act, a person who works for 240 days in a year or 480 days in two years as a Trainee, Casual Labour, or under any other name, has to be made permanent. The Factories Act deals with 240 days as the eligibility criterion for Earned Leave, not for Gratuity.

If an employee dies before completing 5 years and if he had nominated his spouse or parents in the prescribed form as per the Gratuity Act, they will be eligible to claim the gratuity, provided that no disciplinary action was taken against him.

I hope the above information is correct.

K. Gopalakrishnan
Sriperumbudur
90940 16863

Also, remember that along with laws, company policies stand final. The particular employee deemed fit for claiming gratuity must not have submitted a resignation during their tenure.

You must complete 5 years to be eligible for gratuity. Suppose after completing 5 years, you work an additional 6 months; your total service will be 5 years and 6 months. For the purpose of calculating gratuity at that time, 6 years of service will be counted.

Best Regards,
Modi

Employees who have completed five years of service are eligible for gratuity benefits. Even if an employee completes 4 years and 7 months of service and resigns, they are still eligible for gratuity.

Thank you.

Yes, gratuity is paid to the nominee/nominees as per the nomination made by the employee. There is compulsory insurance through LIC. Employers obtain a Group Gratuity policy through LIC by forming a trust. The gratuity amount to the nominee from the date of death up to the date of retirement is paid by LIC, and the period prior to death (even if less than 5 years of service) is borne by the employer.

Yes, section 4 provides 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.

Provided further that in the 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 nominee or heir is minor, the share of such a minor shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such a bank or other financial institution as may be prescribed until such a minor attains majority.

Suresh Adav

Yes, section 4 provides 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.

Furthermore, in the case of the employee's death, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs. If any such nominee or heir is a minor, the share of such a minor shall be deposited with the controlling authority. The controlling authority shall invest the same for the benefit of such minor in a prescribed bank or other financial institution until the minor attains majority.

-Suresh Adav

You are eligible for gratuity, as you have completed more than four years and six months, so you can claim gratuity.

It is clear from the provision of the Act itself (Section 4(1) read with Section 2A and 2(b)) that an employee who has put in 240 days or more of service in the 5th year, subsequent to the first 4 years, should be deemed to have completed continuous service of 5 years and is entitled to get gratuity under the Payment of Gratuity Act, 1972.

In case of the death of an employee before completing 5 years of continuous service, nominees are eligible for payment of gratuity.

Our member friend, Mr. Rajiv Singh, is absolutely correct. The Madras High Court has held that an employee rendering continuous service for a period of 240 days in a year, e.g., the fifth year, will be deemed to have continuous service for one year as stipulated by Section 2A of the Payment of Gratuity Act (Mettur Beardsell Ltd., Madras vs. Regional Labour Commissioner (Central) Authority under the Payment of Gratuity Act, 1972).

Regards,
Swapan

It is better to stay there for another 2 months to become eligible as per the Payment of Gratuity Act. The act clearly defines that one must complete a 5-year tenure to be eligible. So, why give a chance for refusal? Do your best.

Regards,
P. Paraman.

Hello Sir,

I have worked in a company under the shop and establishment act for 4 years, 7 months, and 20 days. Could you kindly advise if I am eligible for gratuity? According to the company norms, they require me to complete 5 years before I am eligible for gratuity.

I am awaiting your earliest reply.

Regards,
Manish