Is 4 Years and 8 Months Enough for Gratuity? Seeking Clarity on Eligibility and Documentation

Dear All, I have learned through sources that, according to a judgment from the Supreme Court of India, any employee who has completed 4 years and 8 months of service (in other words, has completed 240 days in the 4th year) is eligible for payment of gratuity. Is this true? If yes, is there any documentation to support this?

Another thing I would like to know is if this eligibility applies to employees in any other private concern. I am working in a two-wheeler dealership, and the management has deducted EPF and ESI from my salary. Kindly help me. Please.

Regards,
Venkey

Clarification on Gratuity Eligibility

Continuous service of not less than 5 years is the minimum eligibility to get the gratuity. So, what you have heard is absolutely not correct.

Two-Wheeler Dealership and Legal Compliance

The repair and maintenance activity shall automatically come under the definition of "manufacturing process." So, your employer comes under the definition of a factory provided 10 employees with the aid of power or 20 employees without the aid of power are engaged. Once your employer is covered under the Factories Act, automatically the coverage under PF and ESI is a must. As far as ESI is concerned, the location of your organization should come under its coverage jurisdiction.

Regards,
Palani

Compliance with the Factory Act and Gratuity Eligibility

Mr. Venkey,

Greetings for the day. Mr. Palani is correct that a two-wheeler dealership manages a workshop where the use of power is necessary, so it should be covered under the Factory Act. Compliance for ESI/PF is the same as per the act.

Secondly, eligibility for gratuity requires 5 years of continuous service. In each year, the number of working days should be 240 days.

Thanks & Regards,

Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons], [Phone Number Removed For Privacy Reasons]

Supreme Court Judgment on Gratuity Eligibility

According to the Supreme Court judgment, a person who works for more than 240 days in a year without a break in service shall be deemed to have completed one year. Therefore, if an employee works for 4 years and 8 months without a break in service, they are eligible for gratuity. The Supreme Court has given the judgment regarding the eligibility of gratuity for employees who work for 4 years and 10 months.

The Gratuity Act is applicable to establishments where 10 or more employees are employed on any day in the preceding twelve months.

Regards,
V. Ravisankar
[Phone Number Removed For Privacy Reasons]

The Honourable Madras High Court had taken the view in Mettur Beardsell's case that a person is deemed to have worked for one year if they have worked for 240 days in that year. Therefore, if a person has worked for 4 years and 240 days, they are deemed to have put in five years of continuous service and are therefore eligible for gratuity. Somebody has uploaded this judgment on this website. If you search for it under the caption "gratuity," you may probably find it. As far as my knowledge goes, there is no Supreme Court decision on this point.

Regarding the Second Point

The information given by you is not sufficient. Regarding this, five types of situations are possible. Firstly, if there is only sales at the place where you are working and there is no servicing of the vehicles, then the Factories Act will not apply, and the Tamil Nadu Shops and Establishments Act will apply. I have assumed that you are working in Neyveli. If ten or more persons are working in the dealership as of now, or if during the twelve calendar months preceding the date on which gratuity became payable, ten or more persons were working, the Payment of Gratuity Act is applicable to the dealership, and the employees are entitled to gratuity according to the provisions of the Payment of Gratuity Act.

Secondly, if servicing of vehicles is also done in the dealership, then please check whether the employer is showing the service unit as a separate establishment or both the dealership and the service unit as one unit. If both are shown as separate units, please check in which establishment your name is included. If your name is in the dealership, then what I have said in the earlier portion of this post will apply. In case the servicing is shown as a separate unit and you are shown in the servicing unit, please check whether any power is used for servicing work. Even if a quarter-horsepower motor is used, that is sufficient. However, if the servicing unit is to come within the definition of 'factory' as defined under the Factories Act, at least ten persons should have been employed along with the use of power. If the number is less than ten and power is used, then it is not a 'factory,' and therefore the Factories Act will not apply. However, you can claim that the Tamil Nadu Shops and Establishments Act is applicable and on that basis, claim gratuity.

If no power is used in the service department and twenty or more persons are employed, then the service unit becomes a 'factory' as defined under the Factories Act. Fourthly, in the servicing unit, if no power is used and fewer than twenty workmen are employed, the Factories Act will not apply. But you can contend that the Tamil Nadu Shops and Establishments Act will apply and claim gratuity. Fifthly, if the dealership and the service unit are shown as one establishment and power is used for servicing, then the Factories Act would apply if ten or more persons are employed. Employees of establishments to which the Factories Act applies and employees of shops and establishments in which ten or more persons are (were) employed are entitled to gratuity.