Gratuity Eligibility: Does a One-Year Break Affect Continuous Service Calculation?

Good Evening Friends,

I am Suresh, working as an HR Executive in our organization. One of our employees is going to a foreign country for some personal reasons and wishes to come back to India after one year to rejoin our organization. Our management has accepted his request, and he is not resigning from his job. The management will not be paying his salary for this one-year period.

Gratuity Eligibility Query

I want to know if this one-year period will be considered as continuous service when checking the eligibility criteria for gratuity. For example, if he joined on 01-02-2003 and resigned on 16-02-2012, according to his Date of Joining (DOJ) and Date of Leaving (DOL), he worked for 9 years with a one-year break in service.

For the calculation of Gratuity, do we consider 8 years or 9 years? (Basic + DA * 15/26 * ?)

You must consider the 8 years of service. His time abroad was a mutual understanding between the company and the employee, merely for the employee to secure his job post his return. However, this should not be considered a period contributed by either him or the company.

At times, such decisions are at the company's discretion. If your management is ready to consider that one year as continuous service and wants to pay gratuity, you can very well do that.

Regards,
Hiral

Gratuity Calculation Based on Resignation Acceptance

If his resignation is accepted, then the Date of Joining (DoJ) to the resignation date will be used to calculate gratuity. If his resignation is not accepted, then the Date of Joining to the anticipated resignation date will be considered. The days when the employee was on personal work, as permitted in writing by an authorized person/company, will also be included in the continuous service calculation.

If an employee was in unauthorized absence for one year and later he came to the office regularly, and his one-year absence is accepted by the management.

Understanding Section 2A of the Gratuity Act

As per the Gratuity Act, in Section 2A (sub-section 2), for continuous service, one condition is given. I want to know the exact meaning.

In Section 2A (Sub-section 2), it is mentioned that where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1) for any period of one year or six months, he shall be deemed to be in continuous service under the employer:

(a) For the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which the calculation is to be made has actually worked under the employer for not less than:
i) One hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment that works for less than six days in a week.
ii) Two hundred and forty days, in any other case.

Case Study: Employee Absence and Gratuity Calculation

If an employee joined on 01.01.2003 and worked up to 31.12.2009 regularly, and he was in unauthorized absence from 01.01.2010 to 31.12.2010, and from 01.01.2011, he has worked regularly, and on 01.06.2012, he resigned.

For checking the continuity of service for this employee as per Sec 2A(2) of the Gratuity Act.

For the said one year from 01.01.10 to 31.12.10, the employee during the period of twelve calendar months preceding the date with reference to which the calculation is to be made.

Here, what calculation and what period of twelve calendar months are they referring to?

Members, please clarify it.

Dear Mr. Sureshhensel,

The rule for the Payment of Gratuity Act 1972 that you mentioned is correct. One should have completed 4 years and 240 days (approximately 8 months) to become eligible for gratuity.

In the case you mentioned, it is apparent that the employee has completed 5 years of continuous service, and his return to join back has been accepted by the management. In view of this, he is eligible to avail of gratuity. However, if your management considers his joining back as a new employee during the year 2011 and if a new appointment order was issued, then the earlier experience must have been void. Then the count should have been calculated from the DOJ 2011 to the relieving date.

A company can, nonetheless, set its own rules, which should not be less beneficial compared to the provisions of the Gratuity Act. Therefore, check with your management on how they want to plan for that employee. The discretion of management should always comply with Indian Labour Law.

Regards.