Dear Prakash,
Mr P K Jain has rightly descibed the formula for calculation of Gratuity. However, I would like to throw some light on eligibility for Gratuity entitlement in the fifth year.
The gratuity eligibility as per Gratuity Act 1972 is 5 years of continuous service. Sub Section (2) of Section 4 of Gratuity Act, 1972 is for calculation of gratuity and not for the eligibility of gratuity.
But as per the judgment of the Supreme Court, an employee is eligible for gratuity if he has completed 4 years of continuous service and 240 days continuous working in 5th year. On the day when he completes his 240 days in the 5th year he will be eligible for gratuity.
The judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal, [(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act is synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10 months and 11 days is considered to have completed 5 years continuous service under Sub Section (2) of Section 4 and thereby is eligible for gratuity."
Now almost all organizations are paying gratuity if an employee has completed 4 years of continuous service and 240 days continuous working in the 5th year.
There is one more judgment as delivered by the Madras High Court on the eligibility of gratuity is as under :
Hon’ble Justice Mr. S.M. Abdul Wahab J. (W.P. No. 2135 of 1987) gave his verdict on 12.6.1996 in the case betwee Mettur Beardse Ltd., Madras and Regional Labour Commissioner (Central), (Authority under Payment of Gratuity Act) & Others (1998 LLR 1072).
Thus an employee who has put in service for 10 months and 18 days for the fifth year subsequent to first 4 years should be deemed to have completed continuous service of five years. His claim for gratuity is tenable.
Rgds,
Rakesh Pd Srivastav