Is Gratuity Only Paid on Request After 5 Years? Seeking HR Insights on This Practice

It is argued by an HR Manager that gratuity is payable to an employee who has left the service (after completing five years or more) only upon request, and the company need not pay the gratuity on its own. Can my HR seniors confirm whether this is correct?

Understanding Gratuity Obligations

Gratuity is a gift given by the employer to the employee after five years of working tenure. It is an amount payable by the employer himself, for which no contribution is required from either the employer or the employee to any public fund.

According to the law, the amount becomes due when the employee leaves the establishment for any reason, such as resignation, superannuation, or death. Therefore, the employer is legally obligated to pay the gratuity and cannot depend on willingness to pay or give.

Employers should send a letter to the employees within 30 days from the due date. Otherwise, the employer will have to pay interest on gratuity until the actual payment date.

Hi all, I need to know if the gratuity payable after 5 years or 1 year is dependent on organizational policy. Is it true?

The above statements made by respective members need to be looked at afresh and amended. The fact is that Gratuity is not at all a gift by an employer to an employee when he/she leaves the company after completing 5 years or more of loyal service, but it is his/her fundamental legal right under the Gratuity Act. Getting one's dues from the employer once he/she leaves the company does not warrant any demand, but once he resigns, the same is due to the employee when making his/her full and final settlement. In case the company does not make any such payment, the aggrieved employee can approach the appropriate authority. Even in the case of any unpaid dues of workers/employees lying more than 3 years old, they are to be deposited in the respective State Labour Welfare Fund, which is a law. It is altogether different that very few employers are abiding by such a law.

Gratuity Liability and Tax Rebates

The second point is that the so-called gratuity liability can be accumulated in a Trust, under the LIC Group Gratuity Scheme, where Income Tax Rebates are also available. For more exhaustive details, kindly refer to the Bare Act of Gratuity.

Regards

Understanding Gratuity as a Statutory Right

Gratuity is not a gift from the employer but a statutory right enforceable by law. Gratuity rules pertain to the application by the employee and the reply by the employer, among other aspects. Your HR may be right, but please read Section 7(2) of the Gratuity Act, which states that whether or not the employee has submitted an application, the employer shall determine the gratuity and provide notice to the employee and the controlling authority regarding the amount of gratuity determined.

The employer must pay the gratuity within 30 days from the date it is due, or else the employee is entitled to interest. Therefore, it is advisable to pay the gratuity without waiting for the employee's application.

Regards,
Varghese Mathew

Dear Friend,

It is a condition precedent that the employee must have worked for a period of complete 5 years (continuous service) to become eligible for gratuity. However, Proviso 1 to Sec. 4 of the Payment of Gratuity Act provides that the completion of 5 years shall not be necessary where the termination is due to death or disablement. Nevertheless, the quantum of gratuity will be the same as available under the provisions of the Act.

Also, when there is a settlement/company policy providing better terms for gratuity, the same will be accepted.

Regards,
Vinod

I think your HR Manager is ignorant of the Gratuity Act. He is clinging to a cliff and is bound to fall into a deep gutter anytime. Payment of gratuity is the primary responsibility of the employer/HR, whether you apply or not. For any delays, the employer has to settle the gratuity with interest. So, you never lose anything. Let him sleep peacefully.

Regards,
Kumar S.

True, it is not a gift from the employer to the departing employee, but a legal right (not a fundamental right, as this word has a different connotation under the constitution) of the employee to receive it. It used to be a gratuitous act on the part of the employer before the passing of the Payment of Gratuity Act 1972.

It is the duty of the employer to have the required forms filled out by the employee, dependent, or nominee, as the case may be, and simply pay.

Regards,
Abhay Damle

Dear Friend, One pertinent question is there. Did the employee, in your case, leave the organization without notice to the employer? If he quit the establishment without notice, then the gratuity will fall due from the date of the notice of resignation.

Regards, Vinod

I have a doubt regarding gratuity payment. How can we pay gratuity for a deceased family member? Can the legal heir claim under Form K for the payment of gratuity? Can the employer pay directly to the legal heir? How can we determine the legal heir without any claim?

In my opinion, the claim for the settlement of gratuity should be received from the resigned/retired/deceased individual. Please clarify if I am wrong.

Thank you,

kalijanni

First and foremost, please check whether the deceased employee's nomination is on file and clear. Perhaps the nominee is the spouse. We cannot be faulted if we pay the nominee. However, it is always better to obtain NOCs from other family members such as the father, mother, or children who were dependent on the deceased to avoid potential counterclaims later. If the nominee provides a 'Legal Heir' certificate from a competent court, it would be ideal for easy disbursement. Payment can be made by a crossed cheque to the payee's bank account.

These precautions may be time-consuming and may cause hardship to the recipient, but the intent is to ensure that every deserving family member receives their share of the deceased's remains. The purse should not reach the least deserving individual simply because they are the only nominee. In essence, although the payment is made to one individual, it should be shared among the rightful family members. Sometimes, an employee may nominate someone outside the family for various reasons, either before or after marriage.

Kumar S.

Gratuity Payment Obligations

Legally speaking, a company has to pay gratuity to departing employees "on its own" and should initiate all necessary actions required to make the payment. From an HR and IR standpoint, the company should not wait for any kind of written or oral request from the employee. Remember, they are your ambassadors to the outside world. Existing employees also keep a close watch on such incidences (if you do not pay or wait) and form adverse opinions about the organization.

Regards,
Abhay Damle

Understanding Gratuity Obligations

Gratuity is a legal obligation for all employers to provide to employees who have worked for five years or more, along with the full and final settlement of the employee. For this, no willingness is required from the co-management or the employee.

I also want to clarify one point here: if an employee completes 4 years and 6 months or more, it is also considered as 5 years.

I want to know whether I am eligible for gratuity as I joined the company on 10th March 2008 and resigned from the services on 2nd November 2012. Kindly confirm whether I am eligible for gratuity as per the Gratuity Act.

Dear friend,

Sorry to say that you are not eligible for gratuity as per the provisions of the Payment of Gratuity Act. The Honorable Madras High Court, in one case, held that an employee who has served for 10 months and 18 days in the 5th year subsequent to the first 4 years should be deemed to have completed continuous service of 5 years and be entitled to gratuity.

In your case, you have completed only 7 months and 23 days in the 5th year, and hence, you are not eligible for gratuity.

Regards,
Vinod

Ladies and Gentlemen,

I have 2 questions:

1. If it is a contribution by the company to the employee, then why does the company include gratuity as a component in his/her CTC while calculating the CTC?

2. What is the amount the company needs to pay if a person has served the company for 5 years or more? And last but not least,

3. If someone who has served less than 5 years makes a person less dedicated towards getting the Gratuity? Which means that a person who has served 5 or more is considered "loyal"...

Some Indian laws are funny :-)