Are We Entitled to Gratuity After Our Company Closure? Urgent Help Needed!

Dear Friends, we (around 40 members) have been working for a company called Exterran Energy Solutions Ltd. in Chennai. The company is closing down due to some reasons after completing 2.5 years, and we have been retrenched. Gratuity was included as part of the CTC in our employment offer letter. Are we eligible for gratuity? Could anyone reply immediately? Tomorrow, we have a session with the company.

Regards,
Bharat

Understanding Gratuity Eligibility

Gratuity is the reward given by an employer to an employee for long tenure (5 years) continuously in their organization. Once a company closes down, the Gratuity Act provision would not be applicable as the requirement of 5 years of continuous service would not be met. Therefore, gratuity is not applicable to those who have not completed 5 years of service.

Regards.

Industrial Disputes Act, 1947

25F. Conditions Precedent to Retrenchment of Workmen

No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until:

- (a) The workman has been given one month's notice in writing indicating the reasons for retrenchment, and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice;
- (b) The workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and
- (c) Notice in the prescribed manner is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification in the Official Gazette.

If gratuity is part of your CTC, they should pay the amount. The closure is not due to the fault of employees.

Regards,
Pon

I do not agree with your statement because if the company was running, the employer would have had to pay gratuity as per the act. However, in the said case, gratuity would not be applicable.

I would not agree with your statement because if the company was otherwise running, the employer would have to pay gratuity as per the act. However, in the said case, gratuity would not be applicable.

For example, in my CTC, the percentage towards gratuity is held and payable after 5 years in case of separation. When the company closes its operation, I should get back the money held in this account as I am not at fault. I don't know what the law prescribes in this situation.

Regards,
Pon

I am not a Labour Law specialist, but I am an HR Generalist. Still, I have some knowledge of what you are saying. We had this problem in our company, but we made a decision in the employees' benefit. We don't deduct any Gratuity from employees' salary. The provision for the same is to be made by the company as a reserve. All the funds that were held were reversed back to employees, and now Gratuity is not a component of employees' payable salary, though it is a cost to the company and maintained as a reserve by the company with LIC.

You are right; we as employees suffer when we don't complete 5 years because the Gratuity is not applicable to us, and we lose the money.

Including Gratuity in CTC

Including Gratuity in CTC (cost to company) is a wrong practice because Gratuity is purely to be paid by the employer to his employee as a Gratitude for the long and meritorious services. If you read the Gratuity act, however, we see that companies include Gratuity as a matter of legal compliance.

Understanding Wages and Salaries

In my view, if you refer to the meaning of terms wages/salaries in the Factories Act, you must be able to fight for your rights. The company has to return the provisions that are deducted from your salary as Gratuity because it is your money, and it was a component of your package.

Since it's a retrenchment, you will additionally get all that is applicable as per rules.

Regards

The majority of companies are in the wrong by including gratuity as a part of the CTC. In this scenario, the employee is helpless if they do not complete five years of service and have to forfeit an amount equivalent to the gratuity contribution each year. Additionally, if the company is honest in its approach, it can pay the separating employee the equivalent amount as 'ex-gratia'.

Regards,
Puran Dangwal

A Tricky Question

As per the Gratuity Act, it is not payable. However, if it is shown in the CTC in the appointment order and the amount is displayed as a deduction every month in the salary slip or as an expense to the company every month, a logical question will arise. It can be interpreted as an amount deducted from his salary so that they accumulated that amount. In that case, the employer is liable to pay that amount deducted as a part of his salary.

According to the Gratuity Act, an employee must complete 5 years of service to be eligible to receive the gratuity amount. Alternatively, the management can choose to grant gratuity even if the employee has completed 4 years and 8 months. However, it is stated that if the full 5-year period is not completed, the employee is not eligible for gratuity.

Gratuity and Retrenchment Compensation

Gratuity is payable only as per the Gratuity Act, even though the amount is shown in the CTC. Therefore, the stance of "should get" is merely argumentative and not legal.

Retrenchment compensation can be claimed as per legal provisions under the ID Act if it is "Closure" as approved by the Government under the legal provisions.

Regards

The gratuity included in our CTC is different from the gratuity applicable as per the act. If the gratuity is part of the salary, the employer has to pay it upon leaving or closure of the unit. Am I right? Can you reply to me now? I am online, please.

Regards,
MSN Raju

The Gratuity which is included in our CTC is different from the Gratuity which will be applicable as per the act. If the gratuity is a part of the salary, the employer has to pay it upon leaving or closure of the unit because it is the employee's money if included in CTC. Please share your knowledge with us.

Regards,
MSN Raju