Understanding Gratuity Claims: What Happens if an Employee Dies After Just 2 Months?

Hello All,

If any employee dies just after 2 months of joining, can his/her legal heirs claim gratuity? If yes, then how to calculate gratuity for just 2 months? Or what will the legal heirs get as per the Payment of Gratuity Act? I want to know the amount of gratuity the legal heirs will receive if an employee dies just 2 months after joining.

Regards,
Parag

Gratuity is to be paid to an employee who dies before completing the qualifying service of five years. However, the Act is silent regarding any minimum service in the case of death. For the purpose of calculating the amount of gratuity, a service period extending six months shall be considered as one year, whereas service of less than six months shall be ignored. Therefore, if the deceased had worked for at least six months and a day, his dependents would have received gratuity calculated at the rate of 15 days' wages/salary. However, in a death case, even if the service of one day is considered, the gratuity will not exceed what one should receive for one year, i.e., 15 days' salary.

The Payment of Gratuity Act has made it obligatory for the employer to obtain nominations from all employees who have completed one year of service. The purpose behind this provision is to ensure that if any employee dies, his dependents/nominees can receive gratuity without facing difficulties. If the employer is required to give gratuity to the dependents of a deceased employee who worked for less than one year or two months, as in the instant case, there could have been a provision that nominations should be collected from an employee as soon as they join the establishment, similar to ESI or EPF. In the absence of such a provision and since there is a requirement that nominations are to be collected from employees who have completed one year of service, the issue of payment of gratuity to the dependents of an employee who died before completing one year of service remains uncertain.

Open for discussion.

Regards,

Madhu.T.K

Dear All,

Mr. Madhu has raised an important question. We are supposed to collect the nomination in Form F after one year of service. For the calculation part, we can consider one in place of the number of years serviced. However, the question raised here is whether it is legally binding or not. Is there any precedent case in this regard?

S. Sethupathy, Erode.

Dear Sirs,

As far as my knowledge goes, there are no precedents for the method to be adopted by the employer in case the worker dies with less than six months of service.

Regarding the disbursement/payment of gratuity after the death of the employee, I invite your kind attention to the second proviso to Section 4 of the Payment of Gratuity Act. According to this proviso, in the case of death of the employee, gratuity which is due could be paid to his nominee if the nomination had been obtained in the prescribed form and following the provisions of Section 6 of the Payment of Gratuity Act. In case there is no nomination, according to the second proviso to Section 4, the gratuity can be paid to his legal heir(s). However, the employer may find it difficult to identify the legal heir. If a payment is made to a person believing him to be the legal heir, and subsequently, if some other person also claims that he/she is a legal heir, the employer has to establish that the person to whom the amount was disbursed is the only legal heir. Moreover, the legal heirship of an employee can be determined only with reference to the personal (religious) laws of the deceased employee. Legal heirship is a complicated question of law and fact which the employer is not competent to decide. This could be decided only by courts. To avoid any penal interest for not disbursing the gratuity amount within the legally stipulated time, the employer could safely deposit the amount accepted by him as the gratuity payable to the deceased employee with the Controlling Authority under the Payment of Gratuity Act. The receipt given by the Controlling Authority would be regarded as sufficient discharge of the liability of the employer within the stipulated time. Then it is the duty of the Controlling Authority to identify the correct legal heir and disburse the amount to him. I invite your attention to Section 7(4)(a) of the Payment of Gratuity Act. Of course, the legal heir(s) may claim that they are entitled to get more than what had been deposited by the employer. In such a situation, the case has to be contested on factual evidence.

With regards,

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

Suppose an employee's age is 26 at the time of joining, 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 = 147692.00
Gratuity is payable of Rs. 147692.00

Very concisely put. However, we still need to address how to calculate Gratuity for two months, which is part of the initial query. Gratuity is calculated as follows: Wages/26*15 = Gratuity for one year. Divide the amount by 12 and multiply the same by two, and you get two months' Gratuity.

Vasant Nair

Mr. Vasant, you did not read my email properly. I mentioned that the gratuity is payable at the time of joining, and two months' gratuity is included in the above calculation.

Dear Sonu Kumar,

I am not able to follow your calculation of gratuity in case of death. You have stated that in case of death, gratuity is calculated with reference to age and length of service remaining until the date of superannuation. Under which Act or section of the Payment of Gratuity Act is it mentioned that the dependents of a deceased employee are to be paid gratuity based on the period remaining? I have not come across this information. Please clarify.

Regards,
Madhu.T.K

We have pooled all our experience but primary question is unanswered “Is it mandatory for employer to disburse gratuity to employee dies with two months of employment”
The question is how much employer is concerned with values and moral responsibility to yoke or support to affected family extreme cases would have larger infact to employees associated.
Mohammed Azeez
8097436665

The answer, as per legal provisions available, is provided in my immediate reply to the first post itself. However, the discussions progressed based on my apprehensions about the legal responsibility only. Morally, an employer can pay any amount as gratuity, and in the present case of death after two months of service, the same principle applies. I have also mentioned that the maximum legal obligation cannot be more than 15 days' wages, which is the same for an employee who has served for one complete year or one year and six months.

Regards,

Madhu.T.K

Thank you for your kind cooperation and valuable views. However, the question still remains unanswered. There are several views, but all are almost different. So kindly try to extract the exact answer from the labor commissioner's office of the jurisdiction and let everybody know.

Thank you again,

Regards,
Parag

Payment of Gratuity: Gratuity shall be payable to an employee upon the termination of their employment after they have rendered continuous service for not less than 5 years. Provided that the completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement. In cases where the employment termination exceeds 6 months, the employer shall pay gratuity at the rate of 15 days' salary or wage. The amount of gratuity payable to an employee shall not exceed Rs. 10,00,000.

Dear Sonu,

In the first place, I did not respond to your post. Your current post is as confusing as your first response, wherein you have made some calculations of payable gratuity up to the age of retirement. Can you please validate your views?

Vasant Nair

Dear all,

The condition of a five-year minimum service does not apply in the case of death. The Payment of Gratuity Act, 1972, is not silent about it; it is very clear. It clarifies that the condition of a five-year service does not apply in the case of death. Now, the copy of the Act is not with me. Please go through it minutely; you will find the reference. If you have any difficulty in finding it, please revert back. I can bring a copy of the Act and provide the exact reference.

Thanks & regards,

Dear Shayam,

None of the seniors questioned about the disbursement of gratuity in the case of death before five years of services. The problems we discussed are:

1) In the case of death before one year i.e. before filling up the form F, to whom will the gratuity go?
2) What will be the calculation - 15 days or prorated basis for 2 months of services?

S. Sehtupathy, Erode.

Dear Shyam Agarwal,

There is no doubt about the payment of gratuity in death cases, and we all know that it is payable even if the deceased did not work for five years. But the discussion here is whether it is payable to an employee who died within two months of joining employment. If yes, how to arrive at the amount.

My simple calculation is that (as already stated) it shall not be more than 15 days' salary since that would be the gratuity amount if the death had happened after the completion of one year. Even if we take it as the employer's liability, it cannot be more than what it would be for more than one year. Let us even forget about any pro-rata calculation.

Since there may not be any nomination (as required under the Act) if the death had happened before one year, the amount shall be paid to legal representatives as declared by the concerned officials.

Regards,
Madhu. T. K

Dear Parag,

Completion of continuous service of 5 years is not necessary where termination of employment is due to death or disablement due to accident or disease. In case of death, the same is paid to the nominee or heirs (in absence of nomination). If the nominee/heir is a minor, such amount is deposited with the controlling authority who shall invest the same for the benefit of the minor in banks or financial institutions until the minor reaches legal age.

JMK

Thanks for the detailed explanation, Shri Madhu Ji.

Different firms have their welfare rules. In such cases (death before one year), the Food Corporation of India, a Government of India undertaking, was paying 3 months' salary (basic pay + dearness allowance) as gratuity. In the absence of proper nomination, the payment of gratuity can be arranged for legal heirs or the next of kin.

Dear Shri Sethupathy Ji,

Thank you for the detailed explanation. If I was hasty in my conclusions, I apologize. Different firms have their own welfare rules for the payment of a substantial amount of gratuity in the event of an employee's death after a very short period of service. The payment will be made to the next of kin. Thank you once again.

Parameters for Calculating Gratuity in the Event of Death

As per my knowledge, the following are the parameters for calculating gratuity in the event of death:

- During the 1st year of service: 2 months of emoluments.
- After one year but before 5 years: 6 months of emoluments.
- After completion of 5 years of service but before 20 years of service: 12 months of emoluments.
- After 20 years of service or more: Half a month's emoluments for each completed half year of qualifying service, subject to a maximum of 33 times the emoluments, provided that the amount of death gratuity shall not exceed Rs. 10 lac.

Regards,
Deepak Uniyal
THDC India Ltd.

The above parameters are not as per the Payment of Gratuity Act, yet they may be the rules as per your Standing Orders. Since it is more beneficial to the employee, it will prevail over the Payment of Gratuity Act.

Dear Madhu,

It seems very funny to me regarding the Payment of Gratuity Act in the case of death. The Act specifies that even if an employee dies before completing one or two weeks of service, the dependents will only be able to receive a meager amount. Then, what is the use of keeping this clause? If this clause is present, then the parliament should have considered specifying an amount to be payable to dependents.

Completion of 5 years is not necessary; legislators should think about it and at least provide some amount in case of death after joining and before completing 5 years.

Regards,

Death and Compensation Under the Payment of Gratuity Act

Death referred to in the Payment of Gratuity Act includes death outside the purview of employment injury or accident. In case death happens while on duty, in addition to the meager amount of gratuity, the dependents will be entitled to get compensation as per the Employees' Compensation Act. This compensation is to be paid by the employer or ESIC if the deceased was covered by the ESI Act. I don't think that just because an employer provides employment to an individual, they should be held liable to compensate for a death that did not occur while on duty.

Regards,
Madhu T.K

Request for Reference Section

Please provide the reference section and paragraph where it is mentioned that the gratuity is to be paid until the retirement age in the case of a deceased person. Some employers give up to his service period. Please email me at [Email Removed For Privacy Reasons].

Regards