Navigating Gratuity Disputes: How to Fairly Settle Dues for a Long-term Employee?

Dear All, We have terminated an employee who worked with us for almost 14 years. We have issued plenty of warning letters and taken apology letters from him as well. Additionally, we have calculated gratuity at 15 days per year and also paid one month's wages. However, he is requesting gratuity at 60 days per year as part of the retrenchment process.

Please provide guidance on the correct procedure and calculation to be followed in order to settle his dues.

Thank you.

Please provide the following information:

Designation, Nature, and Duties of the Employee:

Date of Joining:

Date of Leaving:

Basic Wages:

Gross Wages:

Reason for Termination:

Thank you.

In your case, you have stated that plenty of warning letters were issued, and he tendered an apology. Terminating an employee who has worked for about 14 years without issuing any show cause notice and without holding any domestic inquiry is illegal, unlawful, and unjustified. The workman was not given an opportunity to be heard. Apart from gratuity, you will be liable to pay retrenchment compensation also. You cannot simply hire and fire.

If you have any queries, please contact:

RL Dhingra, Advocate
Labour Law Consultant, Delhi
Phone: [Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]

Thank you.

An employee who has completed five years of continuous service is entitled to payment of gratuity under the PG Act 1972. Gratuity is paid at the rate of 15 days' salary for each year of completed service. No deduction whatsoever (4.81%) is to be made from the salary of the employee.

Regards,
RL Dhingra, Advocate
Labour Law Consultant
Delhi
[Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]

I agree, you can't hire and fire people in India. How much does one have to pay as retrenchment compensation? Is there any established law for that?

Best regards,
SHD

Please elaborate on what you are trying to say as I am not clear. @4.81% on every month's basic is a must. To my knowledge, a minimum of 15 days per month should be paid as gratuity. Please clarify.

Mr. Dhingra is very right in saying that there will be no deduction from the basic. The gratuity has to be paid by the employer without making it an employee-contributed affair. The rate of calculation of gratuity, which is @4.81% of the basic, is only for the purpose of computing the CTC and taking into consideration the gratuity rule. This is how the provisions are made with your finance/gratuity trust/LIC, whichever administers your gratuity scheme. Nowhere is it mentioned that you have to deduct this amount from employees' salary and pay later.

Mode of Payment

The mode of payment is after completion of five years of continuous service: 15 days of basic to be paid for every year of service completed. If the employee is asking for 60 days of gratuity for every year completed, then he is asking for 45 days in excess. Such considerations will be purely at the discretion of the management.

Grounds for Termination

The grounds for termination have to be made clear to the terminated person, which do not justify any additional payment.

Kind regards,

Dayanand L Guddin

Issue of Gratuity and Retrenchment Compensation

Here, the problem is not with the mode of termination of an employee who completes 14 years of service. The issue concerns the payment of an additional amount of gratuity at 60 days per year as retrenchment compensation.

It is unclear on what basis the terminated employee is requesting this amount. The services of a permanent employee can be terminated by following the regular procedure of issuing a charge sheet, holding an inquiry, issuing a final show-cause notice, and a dismissal order, as per the principles of natural justice. However, in this particular case, it appears that the management did not adhere to this procedure.

In the given circumstances, the employee is free to challenge the management's decision in the Labor Court/Conciliation officer or to settle the case through dialogue with management. However, the employee cannot demand that the management pay gratuity/retrenchment at 60 days per year, as this goes against the provisions of the Gratuity Act or ID Act. The retrenchment compensation should be paid at 15 days average pay for every completed year of service for the 14 years in this case, which may be equivalent to the gratuity payable but not more than that.

Therefore, I suggest that the management pay retrenchment compensation to the terminated employee at 15 days of average pay for the 14 years of service since they have already paid gratuity. If the employee agrees to this proposal, they can proceed with the payment; otherwise, the employee has the option to seek resolution by invoking the jurisdiction of the labor court to obtain appropriate relief.

Regards,
NVRao
Naidupeta

• Mr. Sarathraja, the payment of gratuity is governed by the provisions of the Payment of Gratuity Act and relevant case law. Whatever Mr. PS Dhingra has mentioned in his post is factually and legally correct.
• You seem to be referring to some other act and provisions that are not relevant to the payment of gratuity. Kindly confirm which act you are referring to and to which provisions and sections?

Thanks to seniors, nowadays, no one is giving correct information. To provide better clarity to the person who posted his query, I have replied. I had a nice discussion with you all; now this person has complete information.

Request to all, please, please do reply to queries posted by juniors.

I fully agree with Mr. N V Rao that you cannot terminate an employee without giving him a charge sheet and conducting a domestic inquiry. If you retrench or dismiss his service, you have to pay gratuity at 15/26 of his basic salary for every completed year, in addition to 15 days of retrenchment compensation for each year.

Regards,
S S Rawat.

Gratuity Allocation and Legal Considerations

So far, I know that 4.81% is allocated to the account/finance department as they are responsible for setting aside provisions for the payment of gratuity to eligible employees.

Gratuity, being a valuable right, is not a bounty and cannot be sanctioned for the non-vacation of quarters by the employee, as established in the case MA Shrirahatti v/s N.G.E.F. Limited, Bangalore, 2003 LLR 772 (Karn.HC).

Gratuity, being a statutory right payable after serving an employer for a long period, cannot be revoked by an agreement between the parties. It cannot be reduced but could be enhanced, as seen in YR Shenoy v/s Syndicate Bank, 2003 LLR 615 (sn) (Karn HC).

Payment of Gratuity

Sec.4 sub-sec 2 provides that for every completed year of service or part thereof exceeding six months, the employer shall pay gratuity to an employee at a rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.

Sec.4(3) provides for a maximum of Rs. Ten Lakh.

Sec.4(5) further states that nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award, agreement, or contract with the employer.

Regards,
RL Dhingra
Advocate, Labour Law Consultant, Delhi
[Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]