Can Gratuity Be Claimed After 1.5 Years of Service in Case of Death? Let's Discuss

Gratuity Query

Dear HR professionals, I have a query related to gratuity that was asked of me by an interviewer.

Query Details

Is it possible to receive the gratuity amount after a continuous period of 1.5 years in case of death, assuming the salary is Rs. 8000/- per month?

1. Is it possible to receive it? (The interviewer stated that he will receive it)
2. What would be the calculation?
3. If yes, on what grounds would he receive it?

Please revert.

Regards,
H. Thakur

It is not possible to obtain gratuity, as a minimum of 5 years of unobstructed service is required to receive the benefits of gratuity.

Regards,
Ashish Banka

As per the Gratuity Act, a minimum of 5 years of service is required for eligibility for gratuity. However, in the case of death, the employee will be eligible for gratuity even if he has not completed 5 years of service.

Gratuity Calculation Formula

The formula for calculating gratuity is as follows: (monthly salary x 26) / 15 days x number of years of service.

Regards,
Pradip

It is, of course, possible to receive gratuity even if an employee has not served continuously for 5 years, provided it is a case of Death and Total Permanent Disablement (implying that a person is no longer employable in any trade). Except in cases of death & TPD, gratuity is payable only after 5 years of continuous service. The liability of the employer is restricted to make payment only at the rate of 15 days basic + DA (if it was paid to the employee before death/disablement) for each completed year of service.

Dear Pradip,

Let us be specific, salary is BASIC + DA alone. For the gratuity calculation, the formula is:

1. Basic/26 x 15 days x number of years of service OR
2. BASIC + DA (Last Pay drawn) x 15/26 x No. OF YEARS of service

The gratuity calculation is done as per the last average remuneration drawn and the time in years served by an employee.

Gratuity = (monthly salary / 26) x 15 days x No. of years of service

@thakur_hardev

1) Gratuity is payable on death OR on continuous service of 5 years and retirement/resignation/superannuation.
2) Gratuity = (monthly salary / 26) x 15 days x No. of years of service.
3) On death, he/she gets his/her gratuity under the provisions of the Gratuity Act as passed by the Law of the Land.

ABSTRACT UNDER PAYMENT OF GRATUITY ACT, 1972

1. Extent of the Act:
- The Act extends to the whole of India. Provided that insofar as it relates to plantations or ports, it shall not extend to the State of Jammu and Kashmir [Section 1(2)].

2. To whom the Act Applies:
- The Act applies to (a) every factory, mine, oilfield, plantation, port, and railway company; (b) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in the State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months; and (c) such other establishments or class of establishment, 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 [Section 1(3)].

3. Definition:
- "Appropriate Government" means (i) in relation to an establishment: (a) Belonging to, or under the control of the Central Government (b) Having branches in more than one State. (c) Of a factory belonging to, or under the control of, the Central Government. (d) Of a major port, oilfield, railway or mine company, the Central Government. i. In any other case, the State Government [Section 2(a)] ii. "Completed year of service," means continuous service for one year. [Section 2(b)]. iii. "Continuous Service" means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike, or a lock-out or cessation of work not due to any fault of the employees concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act. Explanation: in the case of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than (i) 190 days, if employed below the ground in a mine, or (ii) 240 days, in any other case, except when he is employed in a seasonal establishment. Explanation: an employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than seventy-five percent of the number of days in which the establishment was in operation during the year. [Section 2(d)]. iv. "Controlling authority" means an authority appointed by an appropriate Government under Section 3 [Section 2(d)]. v. "Family" in relation to an employee, shall be deemed to consist of - a. In the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents and the widow and children of his predeceased son, if any. b. In the case of a female employee, herself, her husband, her children, whether married or unmarried, her dependent parents and dependent parents of her husband and either widow and children of her predeceased son, if any. Provided that if a female employee, by a notice in writing to the controlling authority, expresses her desire to exclude her husband from her family, the husband and his dependent parents shall no longer be deemed, for the purposes of this Act, to be included in the family of such female employee unless the said notice is subsequently withdrawn by such female employee.

4. Nomination:
(1) Each employee, who has completed one year of service, after the commencement of the Payment of Gratuity (Central) Rules, 1972 shall make within thirty days of completion of one year of service, a nomination. [Section 6'1(read with Rule 86(1)]. (2) If an employee has a family at the time of making a nomination shall be made in favor of one or more members of his family and any nomination made by such employee in favor of a person who is not a member of his family shall be void. [Section 6(3)]. (3) If at the time of making a nomination, the employee has no family, the nomination can be made in favor of any person or persons, but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make within 90 days a fresh nomination in favor of one or more members of his family. [Section 6(4) read with Rule 6(3)]. (4) A nomination or a fresh nomination or a notice of modification of nomination shall be signed by the employee or, if illiterate, shall bear his thumb-impression in the presence of two witnesses, who shall also sign a declaration to that effect in that nomination, fresh nomination or notice of modification of nomination as the case may be [Rule 6(5)]. (5) A nomination may, subject to the provision of subsections (3) and (4) of Section 6 be modified by an employee any time after giving to his employer a written notice of his intention to do so. [Section 6(5)]. (6) A nomination or fresh nomination or notice of modification of nomination shall take effect from the date of receipt of the same by the employer [Rule 6(6)].

5. Application for gratuity:
(1) An employee who is eligible for payment of gratuity under the Act, or any person authorized, in writing, to act on his behalf, shall apply ordinarily within thirty days from the date gratuity becomes payable. Provided that where the date of superannuation or retirement of an employee is known, the employee may apply to such employer before thirty days of the date of superannuation or retirement [Rule 7(1)]. (2) A nominee of an employee who is eligible for payment of gratuity shall apply, ordinarily within thirty days from the date of gratuity became payable to him, to the employer [Rule 7(2)]. (3) A legal heir of an employee who is eligible for payment of gratuity shall apply, ordinarily within thirty days from the date of gratuity became payable to him, to the employer [Rule 7(3)].

6. Payment of gratuity:
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years. (a) On his superannuation, or (b) On his retirement or resignation, or (c) On his death or disablement due to accident or disease. Provided 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. Disablement means such disablement, which incapacitates an employee for the work, which he was capable of performing before the accident or disease resulting in such disablement [Section 4(1)]. (2) 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; Provided that in the case of piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account. Provided further that in the case of an employee employed in a seasonal establishment, the employer shall pay the gratuity at the rate of seven days' wages for each season [Section 4(2)]. (3) The amount of gratuity payable to an employee shall not exceed twenty months wages [Section 4(3)].

7. Forfeiture of gratuity:
(1) The gratuity of an employee, whose services have been terminated for any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused. (2) The gratuity payable to an employee shall wholly be forfeited. (a) If the services of such employee have been terminated for his riotous or disorderly conduct or of any other act of violence on his part, or (b) If the services of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment [Section 4(6)].

8. Notice of opening, change or closure of the Establishment:
(1) A notice shall be submitted by the employer to the controlling authority of the area within thirty days of any change in the name, address, employer or nature of business [Rule 3(2)]. (2) Where an employer intends to close down the business he shall submit a notice to the controlling authority of the area at least sixty days before the intended closure [Rule 3(3)].

9. Application to Controlling Authority of direction –
If an employer (i) Refuses to accept a nomination or to entertain an application for payment of gratuity, or (ii) Issues a notice either specifying an amount of gratuity which is considered by the applicant less than what is payable or rejecting eligibility to payment

Regards

Gratuity Act 1972

The Gratuity Act 1972 states: "Provided 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."

Thank you.

Yes, an employee who worked for 1 year or less is eligible for gratuity in case of death if demanded. Age, salary, number of years in the job, etc., are all considered for calculation purposes. The law applicable in the case of an employee living is five years.

Regards,
Mitesh Pathak

Gratuity Eligibility and Calculation in Case of Death

As per the act, a minimum of 5 years of service is required for the eligibility of gratuity for live employees. However, in the case of death, 5 years of service are not required. The gratuity calculation formula for the death case is as follows: (Basic + (D.A. if applicable) x 15) / 26 x (Date of joining until superannuation, i.e., up to the age of 58 years).

For example: Date of Birth is 01-May-1965, Date of Joining is 01-May-1990, and Date of Death is 31-Oct-1991. Calculation as per the above example: (8000 x 15) / 26 x 33 = 1,52,308/- to be paid as Gratuity to the deceased employee.

Regards,
John David

I wonder how members are confidently saying things that are untrue and not legal. They need to have deep legal knowledge, or at least they should refer to books before posting to verify the correctness of information. This is very irresponsible on their part to post incorrect and misleading information.

Gratuity Payment in Case of Death

In the case of death, the condition of 5 years of service for the payment of gratuity is not applicable. There is a specific provision in the act, i.e., 'Gratuity is payable on an employee's death or disablement due to accident or disease. Provided 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.'

Gratuity Payment in Case of Death or Permanent Disability

Gratuity is payable in the case of death or permanent disability. You may also note that there is an insurance premium attached along with gratuity, whereby the nominee of the employee, on death, also receives Rs. 3.5 lakh.

Regards

As the continuous service was 1.5 years prior to death, as per rules, he shall be entitled to gratuity as this becomes an exceptional case. Please refer to the gratuity payment rules by logging in to labour.nic.in.

In my organization, an employee passed away within a period of 4 months. How do I calculate the gratuity to pay? Please guide me on the same.

Regards,
Vikram

Dear John,

You are absolutely right; I am 100% in agreement with your explanation.

Regards,
Sharad
Executive HR & Admin
MNC

If an employee leaves the organization after completing one year of service, and if the employer is willing to give gratuity, then it can be paid. Otherwise, it is as per the rule.

Thank you,

Guru Prasad K.

Gratuity Payment Details

Gratuity payment is a lump sum that your company will pay you as an acknowledgment of your loyalty to the company. Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment.

Conditions for Receiving Gratuity Benefit

There are two conditions that must be satisfied in order to be eligible to receive the gratuity benefit:
- Your organization must have a minimum of 10 people on the payroll, i.e., at least 10 employees receiving salaries from the organization. Note that people on a contract are not considered.
- You must have completed at least 5 years with the organization. If an employee dies during the tenure of his employment, the 5-year rule is relaxed. So, even if such an employee's period of service is as little as 1 year, he/she will be eligible to receive gratuity if the first condition is met.

Tax Treatment for Gratuity

The amount of gratuity received by a person is taxed as salary income under the head 'income from salaries' on the income tax return. If you are a government employee, the gratuity amount paid is completely tax-free. For non-government employees, there are tax exemptions equal to the lower of:
• Amount of gratuity paid or
• For every completed year of employment - Rs 3.50 L (This is the current limit. It may be increased to Rs 10 L in the near future).

Note that this limit is a maximum exemption for all your years of service. It applies to all the amounts of gratuity you will receive in your entire career from all your employers.

So, if you receive gratuity three times in your life and you exhaust the above limit within the first two times you receive gratuity, then the third time you are paid gratuity, it will be completely taxed according to your current tax slab rates.

How an Increase in the Gratuity Limit Will Impact You

The government notified the Payment of Gratuity (Amendment) Act, 2010 on May 18, 2010, which increases the limit of gratuity payment to employees in the specified sectors/establishments covered under the Payment of Gratuity Act, 1972 ("Gratuity Act").

After the amendment, these employees are eligible to receive gratuity up to Rs 10,00,000, which was earlier restricted to Rs 3,50,000. Thus, crores of workers will benefit in establishments covered by the Gratuity Act.

Meaning of Gratuity

Gratuity refers to the emoluments received by an employee from his employer in gratitude for the services rendered. Such a sum can be paid on retirement, resignation, superannuation, death, or disablement. Under the Gratuity Act, the sum can be paid only after an employee has rendered continuous service of not less than five years, with exceptions being termination of employment on account of death/disablement.

Taxability of Gratuity

From a tax perspective, gratuity received by an employee is taxable as salary. The Income Tax Act segregates employees receiving gratuity on the following basis:
• Government employees
• Non-Government employees covered under the Gratuity Act
• Non-Government employees not covered under the Gratuity Act

Based on the above segregation, necessary exemptions from tax can be claimed on the gratuity received.

Exemption Available for Employees Covered Under the Gratuity Act

In the case of employees covered under the Gratuity Act, the exemption is limited to the extent of the minimum of the following:
i) Gratuity actually received
ii) 15 days' salary for every completed year of service or part thereof (i.e., services in excess of 6 months will be treated as full-year service)
iii) Rs 3,50,000 (the maximum limit as provided in the Gratuity Act)

The increase in the limit to Rs 10,00,000 in the Gratuity Act (from the erstwhile Rs 3,50,000) in a way indicates that the tax exemption may also increase.

Regards,
Sharad.

Gratuity Calculation in Case of Employee's Death

Gratuity is applicable when 5 years are completed, but in the case of an employee's death, gratuity is payable up to retirement. The gratuity calculation is mentioned below.

Suppose the employee's age is 26 and the basic salary is ₹8000/-:

- 58 - employee age
- 58 - 26 = 32

Gratuity = basic salary x length of service x 15/26

= 8000 x 32 x 15/26 = ₹147,692.00

Gratuity is payable of ₹147,692.00.

The requirement of 5 years of continuous service for gratuity eligibility does not apply to employees whose employment is terminated due to death. Therefore, gratuity is applicable in such cases.

Regards,
G. Prabhakar

Hi friends, in the case of the death of an employee who has rendered services for 1.5 years (i.e., 12+6=18 months), it will be considered as 2 years for the calculation of the gratuity amount. This amounts to 30 days as per Sec. 6(2), and his nominee will be eligible to receive the same. In other words, if an employee dies before completing 6 months of continuous service, his nominee will not be eligible to receive any amount towards gratuity.

Gratuity Payment on Death

Upon death, he/she receives his/her gratuity under the provisions of the Gratuity Act as passed by the law.

Gratuity Calculation for Death Cases

The gratuity calculation for death cases is related to the number of years they were serviced, not the remaining years of service as a few of our friends mentioned. The remaining years of service can only be considered under the Employees' Compensation Act (earlier Workmen Compensation Act).

Here, the point is that the death occurred in the course of employment and arising out of employment. However, in the case of death for gratuity, the death can be of any nature, not necessarily out of employment. Hence, the question of remaining years of service does not arise. Therefore, the point mentioned by Seema is correct.

Regards,
S. Sethupathy Excellent HR Services, Erode.

Gratuity for a CEO with a Three-Year Term

My appointment in a company is as CEO for a three-year term. Gratuity is part of my CTC. Suppose my term is not extended after the completion of three years, how shall I get gratuity?

Gratuity Calculation for Dependents

In the case of a relevant employee, the dependent will receive gratuity for 2 years. The calculation will be: Last Drawn Basic X 15*2/26. Service up to 6 months and above should be considered as a year.

Thanks,
Sunil Nipurte

It's not possible to claim the gratuity because only those who have completed 4.6 years of service are eligible to claim gratuity. This includes the probationary period as well.

Regards,
Manohara

Gratuity within 1.5 years can be paid in case of death or can be considered in the case of termination/retrenchment for compensation purposes only.

Regards,
D. N. Sharma - GGN - HR.