Gratuity Eligibility for Employee Who Passed Away in Accident: Seeking Guidance

Respected seniors,

This is Ramu, working as a Jr. Manager-HR in a private manufacturing organization in Vijayawada. I have a query regarding gratuity payment. Recently, one of our employees was involved in a road accident while on duty and passed away on the spot. He had served the company for only 4 months. Is he eligible for gratuity in the case of death, even though his service period was less than a year?

I kindly request the seniors to provide your suggestions.

With regards,
Ramu

I would like to quote Section 4 of the Payment of Gratuity Act, 1972:

Payment of Gratuity

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years:
- (a) on his superannuation,
- (b) on his retirement or resignation, or
- (c) on his death or disablement due to accident or disease.

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Hope it is clear now.

As per the provisions contained in the Payment of Gratuity Act 1972, gratuity is payable for the services rendered only. However, continuous five years of service is not necessary in the case of death. In your case, you are not legally required to pay gratuity as the individual in question has only rendered 4 months of service.

However, a service period of 6 months or more is considered as one full year when calculating gratuity. You can assume that he has rendered one year of service and pay the gratuity as a good gesture. If you have established a Gratuity trust with LIC of India, then the insurance company will calculate his gratuity as if he has rendered services up to 58 years of age. To facilitate this calculation, you need to inform the insurance company with certain documents.

Regards,
SDP.

In my opinion, the gratuity paid by LIC is also based on the provisions of the Gratuity Act and the agreement entered between LIC and the employer. The employer submits the list of employees with their date of joining, and based on this data, LIC performs an actuarial valuation and informs the employer of the fund that needs to be maintained in the trust. Any shortfall in the fund must be covered by the employer. LIC makes the gratuity payment to the extent of the fund available against the employer's contribution to the fund. LIC collects a risk premium on the fund payable by the employer, and based on this, LIC pays the gratuity as if the employee has rendered service until the age of 58, in case the employee dies while in service with the employer. Moreover, LIC processes the claim only based on a request from the employer, and in this case, the employer may not be in a position to submit the claim due to the fact that the employee is not eligible as per the provisions of the Gratuity Act.

In this case, I feel LIC may not entertain the claim because the employee has not fulfilled the conditions laid down under the Gratuity Act for eligibility. However, if the employee is covered under the PF Act, he can approach the PF under the Employees' Deposit Linked Insurance (EDLI). Alternatively, if the employer has obtained an exemption from PF and holds the liability with LIC of India, then LIC may process the claim through the employer.

Regards,
M.V. Kannan

Dear SDP, you are receiving good responses to your query; it's great that everyone is supportive on this site.

Gratuity Eligibility Check

Please first check if the employee was a permanent employee of your organization. If he was a permanent employee, then you will have to pay his gratuity up to the age of 58 years.

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Regards

This case doesn't fall under the eligible category of gratuity, whether temporary or permanent. The eligibility for gratuity starts after the completion of 5 years of complete service.

Regards,
Biplab

Gratuity Payment and Insurance Schemes

I wish to add further that a similar scheme is available with other insurance companies as well. It is your liability to make the payment of gratuity as per the law, and you need to make provisions in your books of accounts every year towards this liability. This liability needs to be calculated by actuaries on your behalf, which means you need to appoint actuaries for this purpose.

If you contribute to such a scheme with any of the insurance companies, the appointment of actuaries and making provisions in the books of accounts are taken care of automatically.

Regards

Gratuity Eligibility and Calculation Guidance

If the company does not have an LIC scheme, please guide all of us in this matter. Are employees eligible for gratuity or not, and until when will their families receive the gratuity? Please provide the calculation for this matter. I believe it will be helpful to all of us (members of this site).

Regards

Yes, the concerned employee will be eligible for Gratuity Payment for the 4 months that he served the Company.

Regards,
Vasant Nair

Gratuity Payment Considerations

1) In the earlier reply, I assumed that the employee in question is a regular employee.
2) Remember, if you have established the LIC Group Gratuity Trust and the employee's name is included in the LIC list, then only LIC will calculate gratuity as if the employee has rendered service up to 58 years of age.
3) The employer has to submit the claim form to LIC.
4) It is not obligatory for the employer to establish the LIC Group Gratuity Trust. The employer is only liable for the payment of gratuity for the services completed by the employee.
5) Gratuity calculation formula: Salary (Basic + DA) = 5000/26 x 15 x 20 years = Rs. 57,692/-
6) As mentioned above, if the employee is a member of PF and FPF, their family (widow/widower) will be eligible for pension and PF withdrawal benefits as per the PF Act 1952.

Regards,
SDP

Your query has been answered by Shri S. D. Patil. The gratuity calculation formula can be explained through an example. In this case, the nominee of the deceased is entitled to gratuity equivalent to 1 year, i.e., 15 days' salary.

Thank you.

Your advice is not quite correct. Please read my comments as under:

1. It is incorrect to advise that "you are not legally required to pay gratuity as the person under reference has rendered only 4 months of service." In this case, the Company is legally obliged to pay gratuity to the nominee of the deceased, calculated for 4 months of service.

2. Again, your suggestion that "However, a service period of 6 months or more is considered as one full year while calculating gratuity, and you assume he has rendered one year of service and pay the gratuity as a goodwill gesture" is also not quite right. The deceased worked for only 4 months, so where does the assumption of him working for 6 months or more come in?

As a gesture of goodwill, you may decide to pay the nominee of the deceased employee gratuity based on the assumption that he worked for a period of one year. I wonder if you would like to set a precedent by doing so?

Factually, you are required to pay the nominee of the deceased gratuity only for 4 months of service.

Best Wishes,

Vasant Nair

Hello Seniors, In my opinion, the definition of entitlement to gratuity is as follows:

"Definition of Gratuity Entitlement"

"Gratuity is payable to an employee (or nominee in case of the employee's death) who has rendered continuous service of five years or more upon termination of employment, superannuation, retirement, or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to death or disablement."

If there is any notification or government order regarding the compulsory six months of service, please share.

Regards,
BK Sirohi

Gratuity Eligibility for Permanent Employees

As per Gratuity Rules, if he is a permanent employee, he will receive gratuity. If your employer has LIC's GGCA scheme, he will receive the benefit immediately within 5 days of submitting relevant documents.

Small Note on LIC's GGCA

The premium is paid by the employer on behalf of the employee by establishing a trust. After creating the trust deed, you can register with LIC. Following the payment of the premium and LIC's approval, you can proceed to the Income Tax Department for approval. This process will be advantageous for both your employers in the long run and the employees.

Regards,
Ravi

The Humane Approach to Gratuity for Deceased Employees

The humane approach in all the above replies shows that something should be done to grant gratuity to the deceased, even though the employee is not eligible. In respect of pension, a minimum pension is granted even though the employee does not complete the requisite minimum period of service, which is a benevolent gesture to the deceased. The above discussions drive home this point, and everybody will accept that the same methodology should be devised.

The Gratuity Act needs amendment to fix a minimum amount of gratuity to an employee who dies without meeting the minimum service, as in the case of pension also. The cite-man should initiate action to put the suggestion into reality.

I appreciate S.D. Patil's interpretation of the provisions of the Gratuity Act to determine whether the payment is due to the deceased employee and Keshav Koregaonkar's inputs on LIC and his suggestion to go for the LIC Scheme so that it can cover circumstances of this nature. However, I need one clarification. Mr. Kannan says that in this case, the employer may not be able to submit a claim to LIC since he is not eligible for gratuity under the Act. But technically, the deceased employee is eligible for receiving gratuity, but the gratuity could not be computed under the Act as the employee rendered less than 6 months of service.

Clarification Needed on Gratuity Eligibility Under LIC Scheme

My question is whether this will render the employee ineligible for gratuity under the LIC scheme also, assuming such a scheme covers the employee as he is technically eligible for gratuity under the Act.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

It is mentioned in Sub-section (2) of Section 4 of the Payment of Gratuity Act 1972, and no notification is needed in this regard.

B. Saikumar
HR & Labour Law Advisor
Mumbai

I thank Mr. Saikumar for highlighting the misleading information given by me that the employee is ineligible for Gratuity. Upon reviewing the act, I observe that in the event of death, the qualifying period of 5 years shall not be necessary. Apologies for misleading the forum.

Payment of Gratuity

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years:
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease;

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

Provided further that in the case of the death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to the heirs.

Regards,
M.V. KANNAN

Dear Vasant Nair, you have differed from S.D. Patil's view, and according to you, the deceased employee (or his nominees/legal heirs) is entitled to gratuity even for four months. I hold the same view as that of S.D. Patil. Probably you appear to have based your finding on Sub-sec. (1) of Sec. (4). No doubt, Sec. 4(1) dispenses with the requirement of 5 years of continuous service in case of death or disability and makes such an employee eligible for gratuity.

Eligibility and Payment of Gratuity

Thus, Sec. 4(1) deals with mere eligibility. Once the eligibility is decided under Sec. 4(1), then the next question is how much gratuity is to be payable to the employee. That question is not answered by Sec. 4(1), and that is answered by Sub-Sec. (2) of Sec. 4 of the Gratuity Act. Sec. 4(2) links the quantum of gratuity payable to an employee to the period of service rendered by him in the organization. It says gratuity is payable at the rate of 15 days' wages for every completed year of service.

Therefore, the Act desires that an employee shall at least complete one year of service. In construing a year of service, Sec. 4(2) considers any period of service in excess of six months as one year. This is the mandate of Sec. 4(2). Therefore, Mr. Patil said that the deceased employee is not eligible for gratuity in view of his 4-month service. Probably this must be the reason as to why he said that gratuity in this case can be paid by the employer as a goodwill gesture. I also subscribe to this view.

Best regards,
B. Saikumar
Mumbai

This has become very interesting.

Eligibility for Gratuity Payment in Case of Death

Section 4 of the Act stipulates the precondition of completion of 5 years' continuous service to become eligible for the payment of Gratuity. It also states that this precondition does not apply in cases where termination of service is caused by death. Subsection (2) of Section 4 clearly states that for every completed year of continuous service or part thereof in excess of six months shall attract payment of one year's gratuity. In this case, the employee has worked only for 4 months and is therefore eligible for the payment of Gratuity only for these four months. I would like to stay with my original opinion that the deceased's nominee is entitled to Gratuity calculated for 4 months.

Vasant Nair