Gratuity Confusion: Should It Be Paid If Listed in Salary Breakup for Less Than 4 Years?

Dear Seniors,

We are one of the leading service providers in Bangalore. We have a practice of showing Gratuity in the employee salary break (in the appointment letter) as an employer contribution. I am aware that it is payable at the end of 4 years and 240 days as per the act. Recently, I have come across a query from an ex-employee stating that since it is shown in the break of his appointment letter, it is payable to him irrespective of his tenure in the organization.

The said ex-employee has completed 3 years with us. Kindly guide me on how to tackle the situation.

Regards,
Amar

Well, showing gratuity in the appointment letter is not a good practice. Many companies include gratuity contributions in the offer letter and appointment letter. In this case, you are not bound to pay gratuity to the employee since they have not served the organization for 5 years. Explain to the employee that the company needs to allocate funds to the gratuity trust annually for every new hire; hence, the contribution is reflected in the appointment letter.

If the employee had completed 5+ years of service, the company would have provided the gratuity amount. As you have not completed 5 years of service, you are not eligible for gratuity. Additionally, if feasible, consider excluding the gratuity contribution when calculating the CTC for new employees.

Thank you.

My suggestion is not to show the gratuity breakup in the appointment letter.

I have a query regarding gratuity payment. If an employee is granted an extension after turning 60 years old, up to 65 years, and then resigns at the age of 62, is he eligible for gratuity even though he has not completed the full 5-year duration (up to 65) and it is not a natural retirement? Your advice, please.

Unfortunately, the concerned employee is not eligible for gratuity.