Can an Employee Claim Gratuity if Let Go Due to Business Loss After Three Years?

If an employee is being served a notice of leaving the job from an employer after three years of employment (due to a loss in business, but the company is a limited firm), does the employee have the right to claim gratuity since he is not leaving the job willingly? Please help by replying.

Note: The employer is not shutting down the business.

Regards

Eligibility for Gratuity

An employee is said to be eligible for gratuity with not less than 5 years of continuous service. Please refer to the Payment of Gratuity Act under Section 2A.

Continuous Service Definition

Continuous service means an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service. This includes service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing order, rules, or regulations governing the employees of the establishment), layoff, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

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.

Calculation of Gratuity

While calculating for gratuity, if any person completes 5 years and 7 months, they are said to be eligible for 6 years' gratuity. If they complete 5 years and 5 months, they are said to have completed 5 years of their tenure. This means if the person exceeds six months of tenure, they are supposed to have completed 1 year (240 days will be considered as having continuous service for that year).

In the above case, the employee has not even completed 5 years of service, and as per the gratuity act, they aren't eligible and have no right to claim under any circumstances.

Regards

Gratuity is payable to an employee in case of resignation or termination after he/she has rendered continuous 5 years of service. In cases where less than 5 years of service are rendered and the employee is terminated, the gratuity is not payable.

Regards,
SDP

Gratuity payment to the employee has nothing to do with the profit or loss of the business. Also, whether it is termination or resignation, it does not matter for the payment of gratuity.

As others have mentioned, gratuity is payable on completion of 5 years of service with the same employer. In this case, an employee cannot demand gratuity under the law. However, the employer can consider the payment of gratuity if it is considered as a part of CTC or as an ex-gratia.

Hope this would suffice.

Regards,
Ravindra Chaubal
Sr. Manager - HR
[Phone Number Removed For Privacy Reasons]

Hello Ravindra, your advice sounds good. What I understand from your view is that it is the sole discretion of an employer to pay gratuity in this case, even if it is shown as part of CTC.

Regards

Gratuity payment to the employee is not a matter of profit or loss of business. Whether it's termination or resignation, according to the Gratuity Payment Act, employees have to complete 5 years continuously. Since you have not completed 5 years in the current organization, you are not eligible for gratuity payment.

Dear Ravindra Sir, please clarify whether an employer can deny gratuity to one employee and give it to another employee, considering that both of them have completed more than 5 years of service.

Regards,
H. Sundara Raman

Gratuity Eligibility and Payment

If an employee has completed 5 years of service, he/she is eligible for gratuity under the Payment of Gratuity Act. The employer cannot deny the gratuity as it is a legal requirement unless an employee is dismissed from the services. The employer should not discriminate between two employees as far as legal payment is concerned. Do you have a specific case on which I can comment if required?

Gratuity should be paid within 30 days from the date of application for gratuity and not from the date of termination.

Thanks & best regards,
Ravindra Chaubal

Gratuity Entitlement Under the Payment of Gratuity Act

Every person who has put in continuous service of more than five years has the right to receive gratuity under the provisions of the Payment of Gratuity Act, subject to a maximum of Rs. 10 lakh from all sources of gratuity, upon any type of separation from service except on the grounds of moral turpitude. Even in the case of dismissal on the grounds of loss to the company, the quantum of loss shall be deducted from the payable gratuity, and the remaining amount must be paid. Employers do not have the choice or option for discretionary payment.

Furthermore, in the event of an employee's death, the condition of having completed five years of service is not required, and the legal heirs are entitled to receive the gratuity in respect of the deceased employee.

Regards

No, an employer cannot deny the Gratuity Payment of an employee who has completed 5 years of continuous service. Is there any reason for misappropriation or theft committed by the employee? If not, you will have to pay Gratuity as per the formula given under the Act. If you do not pay Gratuity, the employee has the option to lodge a complaint with the Dy. Labour Commissioner, who is the authority under the Act.

If you are interested in delaying the payment due to non-availability of cash flow, you may deny the Gratuity and let the employee lodge the complaint to the authority. A hearing with the authority will take some time, and in the meantime, you can arrange for the money or give a commitment of payment in the presence of the Authority. However, someday you have to make the payment.

Thanks & regards,

Ravindra Chaubal
Sr. Manager