Is My Late Father's Employer Liable for Gratuity and Interest After His Passing?

My father had been working in a company for 1 year and 8 months before he fell ill. Due to his illness, he had to spend the last two and a half months in the hospital. Unfortunately, he could not recover from his illness and passed away in April 2009. At that time, his last employer had paid the nominee (my mother) the full and final settlement. However, the gratuity was not included in the full and final payout. It was only in April 2012 that we discovered that even if an employee has not completed 5 years of continuous service and passes away before that time, the nominee is entitled to receive the gratuity amount for the years of service the employee completed.

Understanding Gratuity Entitlement

Is this understanding correct? If so, what formula will be used to calculate the gratuity in this scenario?

Employer Liability for Gratuity Payment

Additionally, since the employer did not pay the gratuity in 2009 or during the subsequent three years, is the employer now liable to pay any interest or penalty for not disbursing the gratuity owed to the employee's nominee (my mother) for the past three years (from 2009 to 2012)?

Please provide us with any relevant information on this matter. Your assistance would be greatly appreciated.

Regards,
Ritu

Yes, he is eligible for gratuity for two years to be calculated at 15 days' wages last drawn for each completed year of service, and service in excess of six months is to be treated as one year.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Many thanks for the reply, Mr. Sai Kumar. Could you please guide me with a couple more questions?

1. Will the period of two and a half months when he was in the hospital also be included in continuous service? Because if we remove those two and a half months, his service becomes less than 1 year and 6 months, which will affect the calculation of the gratuity amount.

2. When we informed my father's last employer that they haven't paid the gratuity to the nominee, they said it is a very old case (3 years old) and they will have to see if the gratuity payout is still applicable. They will internally decide if gratuity is to be paid or not. Is it true that in old cases or beyond a particular lapsed time of gratuity payout or in any other circumstance, the nominee will not be eligible to receive the gratuity amount? We are waiting to hear back from them.

3. In case they pay the gratuity, will the employer be liable to pay the nominee interest on the gratuity amount for these three lapsed years or any other penalty for not paying the gratuity on their own during the full and final settlement?

Awaiting your response with anticipation.

Thanks,

Ritu

My answers to the queries are:

1. The two and a half-month period during which your father was in the hospital on sickness grounds shall be treated as part of the continuous service.

2. The claim for gratuity is not time-barred as the law of limitation is not applicable to it. The company cannot deny the claim on this ground as it is obligated under the law to pay the gratuity to the nominee of the deceased employee.

3. The company has to pay the gratuity under the law to the person named as the nominee in the nomination form and is liable to pay interest at the applicable rate.

Regards,
B. Saikumar
Mumbai

Thank you, Sir, for all your help. I am waiting to hear back from my father's employer regarding the decision on the gratuity payout. I'll keep you informed of the outcome. In case they deny it on any grounds, I will also seek your assistance in determining the next course of action required.

Thanks a lot.

Sincere regards,
Ritu

Clarification on Gratuity in the Event of Employee Death

I would like to clarify the gratuity process in the event of an employee's death while in service. In such cases, the number of years for gratuity calculation is extended until the employee would have reached the superannuation age. For example, if an employee is 30 years old, has served for 5 years, and unfortunately passes away, the gratuity is calculated for 33 years (assuming the superannuation age is 58 years). Recently, in our organization, we applied this calculation for an employee who passed away at the age of 42.

According to Sec. 4A, every employer must obtain an insurance policy for their gratuity payment liability under this act, from LIC or another prescribed insurer. In the event of an employee's death, the policy functions like a typical life insurance policy.

Exemption from Five-Year Service Requirement

As per Sec. 4(c) of the Payment of Gratuity Act, completing five years of continuous service is not necessary if employment termination is due to death or disablement.

Gratuity Calculation Formula

The formula for gratuity calculation is: Number of years x (Basic + DA) x 15/26.

Regards,
G.K. Manjunath
Sr. Manager-HR

Calculations need to be done only based on the actual years of service and not up to retirement age. Some companies have a policy to cover up to retirement age in case of death. The clause that makes it mandatory to take a policy with LIC of India has not been notified and hence has not come into effect. Even this clause does not contemplate payments up to retirement age in case of death.

However, I wish all organizations would take such a policy to provide more benefits for the family in case of an employee's death. Wherever I worked, we took a similar policy.

Regards,
Sivasankaran

Authority to Address Gratuity Disputes

If an employee or nominee is eligible for gratuity but the employer does not want to pay it, then to which authority should we address the case?

Regards,
P.K. Sharma

You can approach the controlling authority under the Act, who has jurisdiction to issue directions to the employer for payment.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Clarification on Gratuity Entitlement

With due respect to all, Manjunath's views are not supported by law. Mr. Sai Kumar has correctly interpreted the law. The Payment of Gratuity Act does not speak of gratuity entitlement until the age of retirement in case of death. It only relaxes the condition of five years of service.

Regards,
Anil Kaushik

Gratuity Claim Clarification

Hi friends, this is K. Anjireddy, working as a Senior Officer (P&A) at M/s Centuary Mattresses. Based on my knowledge, under the Payment of Gratuity Act, the kin of the deceased employee's family will receive the gratuity claim for the remaining service of the employee (from the date of expiry to the date of retirement) as if he had worked in the organization.

Could you please clarify this for me?

Thank you.

Regards,
K. Anjireddy

No, where the intention of the legislature has been like this, the deceased will be entitled to the gratuity for the period of service he completed.

Regards,
Anil Kaushik

Employee Benefits After Workplace Accident

If a person has been working for 4 years and met with an accident at work, resulting in hospitalization for years, and subsequently resigned from the company, he had his PF withdrawal settled. Now, ESI is paying him 100% of the wages of his last drawn salary every month.

The person is no longer alive. What benefits should the company provide, and what is the procedure for this?

Please advise.

Thanks and Regards,
Saravana

What Mr. Anil Kaushik said is correct. There is no provision under the Gratuity Act for paying gratuity in case of the death of an employee on a notional basis for the remaining period of service till retirement. If any company is paying so, it must be doing it under its own policy.

Regards,
B. Saikumar
Labour Law Advisor
Mumbai

Understanding Gratuity Payment and Superannuation

The confusion regarding the payment of gratuity calculated until the age of superannuation is genuine. This confusion arises because the gratuity policy of LIC, which is linked to death insurance, pays gratuity for the remaining period. This situation is a result of the policy that covers the employer's gratuity liability, allowing the dependents of the deceased employee to receive it, rather than in accordance with the Payment of Gratuity Act. Under the Payment of Gratuity Act, the employer's liability is limited to the service the deceased had rendered and does not extend until their age of superannuation.

Regards,
Madhu.T.K

My father's employer has decided that they will pay out the gratuity for the years of service he had completed. However, they are denying their liability to pay the interest on the gratuity amount for the past three years (since 2009 to 2012, from my father's death until now).

Could you please guide me:

(a) If they are bound by the Act to pay interest on the gratuity amount.

(b) If yes, what is the rate of interest they are bound to pay?

(c) Is the payment of interest in case of a delay in gratuity payment documented under the Gratuity policy? Could you please share the same with me?

Please help me with the above so that I can talk to the company with the right information.

Thanks in anticipation.

Best Regards,
Ritu

The company has to pay interest under the Gratuity Act, simple interest as notified by the Central Government from the date it became payable till the date it is paid. Thus, you are entitled to claim interest.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Thank you for the reply, Mr. Saikumar. Could you please let me know what will be the applicable rate of interest in this case? Is there some document available stating this, such that I can talk to the company in reference to that document?

Thanks again.

Regards,
Ritu

Hello Mr. Saikumar, I spoke to my father's employer regarding the interest due to the delay in the Gratuity payout, and below is what the HR manager told me:

He said that the company cannot withhold the Gratuity with them if it is not claimed or paid out to the nominee for any reason. In that case, the liable Gratuity amount is paid out to some fund called the Labour Welfare Fund and not kept with the employer. In case a nominee claims it sometime later (or say after years), then they have to claim it from the Labour Welfare Fund and not from the company. So, according to him, today if we claim the Gratuity after 3 years, then we should be checking with the Labour Welfare Fund. And the employer is never liable to pay any interest on it. But he also said, since the HR team got changed after 2010 (after my father's demise), he said that his new team somehow could not ascertain if indeed the Gratuity money was given to the Labour Welfare Fund and more so, to "help us avoid the misery of getting into the process of claiming the money from the Labour Welfare Fund," which according to him, would have been a horrendous task to do. So in view of all this, and as per him, they wanted to "make it easy for the family of their ex-employee to get the Gratuity easily," so they have paid only the principal Gratuity amount. And he said hence because of the clause to deposit unclaimed Gratuity in the Labour Welfare Fund, the company is NOT liable to pay any interest.

Is what the HR manager told me true? Somehow, I am not convinced with what they say. Can you please guide me if this is true?

Thanks,

Ritu

Understanding Gratuity Payment Obligations

The Labour Welfare Fund Act, particularly the Bombay Labour Welfare Fund Act, provides for crediting unclaimed accumulations to the welfare fund. However, Section 7(2) of the Payment of Gratuity Act makes it obligatory for the employer to determine the amount of gratuity payable to an employee and give notice in writing to inform them of the amount of gratuity payable. You can ask them why they have not given such notice.

Additionally, the company should have made efforts to contact you to pay your gratuity before deciding to credit the amount to the welfare fund. Have they made such efforts? The employer can only decide to credit the amount to the welfare fund when they have given notice of the dues to the employee and the employee has not made any claim. Therefore, the delay is also due to the employer's lapse, apart from the delay on your part out of ignorance, and hence the employer is liable to pay interest.

You can make an application to the company to that effect. If the company does not respond, you can approach the controlling authority to claim interest. If the amount involved is small, you can consider this option.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Payment of gratuity on the death of an employee

I understand that completion of 5 years of continuous service is not necessary; however, the minimum period is not mentioned. Upon analysis of various provisions under the Act:

- Payment of gratuity is calculated as 15 days for every completed year of service (so practically it has to be at least 1 year).
- Completed year of service means continuous service for 1 year.
- If an employee has completed 240 days in the last twelve months (including days like lockout, maternity leave, etc.), it means continuous service of 1 year.

Therefore, we can conclude that if an employee has worked for 240 days, they become eligible for gratuity in case of death.

Views of learned members are sought.

Clarification on Gratuity Payment in Case of Death

This is the clarification I received from the Life Insurance Corporation regarding the payment of gratuity in case of any death:

Dear Sri Manjunath,

We are servicing your NGGCA policy with the number 501001070. We have to mention that as per the policy conditions, the following benefits are payable to trustees:

1. In case of retirement of an individual employee: Total accrued gratuity.
2. In case of resignation: Total accrued gratuity as of the date of resignation.
3. In case of death of an employee while in service: Accrued gratuity as of the date of death + death benefit, which will be equal to an amount the employee would have received had he survived until the last day of his retirement.

This is for your information.

Regards,
B. Suresh Babu

Many of our friends have clearly stated that there is no need to pay until his superannuation. As per the law, they are correct. When you take a policy, we have to pay as clarified by the LIC.

Regards,
G.K. Manjunath

Mr. Manjunath, thank you for your reply. With respect to the quantum of Gratuity payable, I think you have given good inputs. However, my question was a little different. I was referring to the minimum period of service to be rendered by an employee to be entitled to Gratuity. For instance: An employee has worked for just 7 days and then dies. Whether he is still eligible for Gratuity?

Dear Friend,

In case of death, the minimum period of service does not arise.

GKM