Gratuity Calculation for Employee's Death with Under 5 Years of Service: How Is It Handled?

Gratuity Calculation for Employee's Death with Less Than Five Years of Service

I have one question about gratuity: how to calculate gratuity in the case of an employee's death when the employee has less than five years of service in the organization. Please guide me and provide the formula or any relevant section of the law in this regard.

Thank you.

Supposing an employee died after serving 4 years and 3 months, his gratuity shall be calculated as under:

15 days wages (to be calculated on the basis of last drawn wages) X 4.

Note: Three months to be ignored since it is less than six months.

Supposing an employee died after serving 4 years and 7 months, his gratuity shall be calculated as under:

15 days wages (to be calculated on the basis of last drawn wages) X 5.

Note: Seven months is taken as one year since the part of service is more than six months.

You can also search Google for relevant material and e-books on this subject.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
[Phone Number Removed For Privacy Reasons]

But sir, what if the person died after serving 3 years and 5 months? How will the calculation be done for gratuity?

Doubt Regarding Service Ignorance

Secondly, I have a doubt related to the ignorance of 3 months of services in the above-mentioned case by Mr. SP Chauhan. Kindly resolve it! I am a little confused.

Gratuity Calculation in Case of Employee's Death

As per Section 4(1) of The Payment of Gratuity Act 1972, in the case of death, the employee becomes eligible for gratuity benefits even though their service is less than 5 years. Accordingly, you need to calculate their gratuity at the specified rates of calculation for three years only, i.e., 15 days/year multiplied by the number of years of completed service.

As per Section 4(2) of The Payment of Gratuity Act 1972, every completed year of service or part thereof exceeding six months shall be deemed to be a year for the calculation of gratuity. Hence, service less than 6 months shall not be considered for computing one year of service for an employee.

Regards,

In the case of the death of an employee, we can pay gratuity to his/her nominee only if the employee has completed a minimum of one year of service in the organization. According to the Gratuity Act, we are required to take a nomination in Form F after the completion of one year of service for every employee. Therefore, a minimum of one year of service is necessary to pay gratuity in the event of an employee's death.

Regards,
Anuj Trivedi

Dear Seniors, Please advise on the following:

- Is gratuity payable to a probationer who died in a fatal accident in the fifth month of his employment service?
- Is gratuity payable to a confirmed employee who died in a fatal accident in the fifth month of his employment service?
- Is gratuity payable to a confirmed employee who died in a fatal accident in the eighth month of his employment service?

WISHING EACH ONE OF YOU A VERY HAPPY AND PROSPEROUS NEW YEAR 2012.

I sincerely await the earliest response.

Regards,
Lancy Menezes
Manager - HR Administration

In all cases mentioned above, the employee, whether a probationer or confirmed, falls under the definition of an employee as per The Payment of Gratuity Act, 1972 and is eligible for gratuity benefits. However, in the case of probationers or confirmed employees whose services are less than six months, they will not be eligible for gratuity benefits. In the last scenario, a confirmed employee who has completed more than six months of service, meeting the continuous service requirement for gratuity eligibility, will be eligible for gratuity benefits for only one year, i.e., for 15 days only.

Regards,

Happy New Year.

As per the provision of sub-section 1 of Section 4 of the Payment of Gratuity Act 1972, the completion of five years is not necessary. The amount of gratuity should be calculated accordingly. Mr. Atul S. Malve, Manager HR & Admin, is very correct.

Thanks and regards,
RL Dhingra
Advocate
Labour Law Consultant, Delhi
[Phone Number Removed For Privacy Reasons]
E-mail: [Email Removed For Privacy Reasons]

This is related to an employee who has passed away. If an employee leaves the organization after 3 years and 9 months, will they be eligible for gratuity?

Thanks & Regards,
Anil

As per Section 4 of the Payment of Gratuity Act, gratuity shall be payable to an employee upon their death or disablement due to an accident or disease. It is provided that the completion of continuous service of five years shall not be necessary if the termination of employment is due to death or disablement.

Under the circumstances, please pay the gratuity at the rate of 15 days of salary for each completed year of service in excess of 6 months, to be rounded off to 1 year.

Thank you.

As per our company practice, we will pay gratuity for all those years from his date of joining to the age of superannuation, i.e., 58 years. The criteria of 5 years of service are not considered in the case of death. We are paying actual gratuity as well as future gratuity.

Regards,
Ulhas

It is truly humane of your company's management to consider employees who pass away during their employment service.

Gratuity Settlement Scenarios

- For Mr. X, aged 25 years, a confirmed employee who had just completed 5 months of service and had a fatal accident, the gratuity settlement will be 15 days' salary (Basic + DA) multiplied by 33 years.

- For Mr. Y, aged 25 years, a confirmed employee who had just completed 9 months of service and had a fatal accident, the gratuity settlement will be 15 days' salary (Basic + DA) multiplied by 33 years.

- For Mr. Z, aged 25 years, a confirmed employee who had just completed 5 years and 2 months of service and had a fatal accident, the gratuity settlement will be 15 days' salary (Basic + DA) multiplied by 33 years. (**Last Drawn Salary)

Please confirm my understanding.

Kind Regards,
Lancy Menezes

I would also like to know about this. If an employee passes away during their service, are they eligible for gratuity based on their completed years of service and the number of years of service up to their probable retirement date? Can you please provide me with the details?

Regards,

Gratuity Calculation for Short Service

If an employee has served the organization for less than a year, the gratuity calculation is done for one year only. If the service period is more than a year, the calculation is from the joining date to the age of superannuation, as in the case of Mr. Z. I hope this information resolves your query.

Regards,
Ulhas

As per the Payment of Gratuity Act, it is compulsory to take insurance for employees against gratuity. In the case of death, the organization must calculate the gratuity based on the period the employee worked with the organization using the formulas provided. The organization then needs to claim the remaining period's gratuity (as if the employee had worked until retirement age) from the insurance company. This amount is to be paid to the nominee of the deceased employee.

Regards,
Sunil Shelke

What if someone dies before completing their 6 months of service?

Could someone share the documents of the Gratuity Act and the website too?

Regards,

Gratuity Eligibility Query

Happy New Year to all of you. I have one query: if an employee has completed 4 years and 5 months of service and was absent/on leave for two months, then returned to the office and submitted his resignation with immediate effect, would he be eligible for gratuity? Please advise.

Best Regards,
Anil

Even adding two months of leave (assuming that he availed leave with wages) to his service of 4 years and five months, it totals up to 4 years 7 months (210 days), and thus he is not eligible for gratuity.

Regards,

Thank you, seniors, for your guidance and support. In our industry, a contract employee was made permanent on 01.04.2011 and unfortunately passed away in August 2011 due to a road accident. That is why I am reaching out to seek your assistance with my inquiry.

Regards,

Gratuity Payment in Case of Death or Disablement

Under provision 1 of Section 4(1), the requirement of continuous service for 5 years shall not be necessary in cases where termination of employment occurs due to death or disablement. In the event of death, the gratuity amount will be paid to the nominee. If no nomination has been made, the gratuity shall be paid to the heir. If the nominee or heir is a minor, the gratuity amount shall be submitted to the controlling authority. The minor can access this fund once they reach the age of majority.

Gratuity Calculation for Completed Service

For every completed year of service or part thereof exceeding 6 months, the employer must pay gratuity to an employee at a rate of 15 days' wages based on the rate of wages last received by the employee.

Gratuity Calculation Based on Wage Payment Method

According to the explanation under Section 4(2), if the wages are paid on a monthly basis, then the per diem wage for the purpose of calculating gratuity will be computed as follows:

Salary/Wages for Gratuity = Rate of Monthly Wage Last Drawn * 15 / 26

In the case of employees paid on a piece-rate basis, daily wages are calculated as the average of the total wages received in a period of 3 months immediately preceding the date of termination. For this calculation, wages received for any overtime work shall not be considered.

For more information on the Payment of Gratuity Act, Rules, Forms, Returns, and other related information, please visit http://www.shramsamadhan.com/p/payme...act-rules.html.

The prerequisite for completing continuous service of five years shall not be necessary where the termination of an employee's employment is due to death or disablement to the extent that the person is literally unable to provide the required services.

Round off the service in excess of 6 months to the nearest figure, and if it is less than 6 months, round down to the nearest figure. For example, 2.6 years should be treated as 3 years, and 2.4 years should be treated as 2 years.

I hope this is clear.

Regards,

Formula for calculation: Recent drawn basic * number of years of service * 15/26. Insert values in the above formula to calculate the gratuity amount.

Regards,