Gratuity Confusion: Can You Claim It If It's Not in the Company Policy?

If the organization does not mention gratuity in its policy, can an employee claim for gratuity?

Gratuity as a Statutory Right

Gratuity is a right conferred by the Statute (Gratuity Act 1972) on the employee, not a bounty to be given by the employer out of grace. Hence, an employee can claim it irrespective of whether or not it is mentioned in the policy or appointment letter.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

In continuation of the views expressed by the learned members, I would like to add the following:

Gratuity as a Terminal Benefit

'Gratuity' is one among the triple terminal benefits, namely gratuity, provident fund, and pension, available to the workmen in India. The Payment of Gratuity Act, 1972, is a social security legislation. That's why the Act has been amended 7 times from 1984 to 2010, extending its coverage, applicability, and other details to achieve the purpose of the enactment stated in its preamble. Therefore, whether stated in the policy of any individual organization or not, the right is still available to its employees.

Applicability of the POG Act

While endorsing the responses by everyone, I would like to point out that the POG Act is applicable to establishments employing 10 or more employees in the past 12 months. Once the Act applies to an establishment, it remains applicable indefinitely. Although all the members who participated in this discussion are aware of this, they somehow missed mentioning it. Govind Ji did include this information in his blog.

Thanks & regards,
Keshav Korgaonkar

Hi, the Payment of Gratuity Act, 1972 is applicable to establishments or factories where 10 or more employees are working. Even though your company policy explicitly states on gratuity, as per statute, this Act will apply to your organization. However, gratuity is applicable only when the employee has put in continuous service of 5 years.

Regards,
BV Sudhakar

I always said that no company's policy is above the law. As stated by many, it is a statutory right of an employee and cannot be evaded under any circumstances. Rest assured, if you complete 4 years and 240 days in your company, you are entitled to gratuity irrespective of any company policy.
Regards.

Thank you all for the information. I understand that gratuity is applicable only after completing 5 years of service. If the organization refuses to pay gratuity, citing reasons such as running at a loss or no profit, can the employees claim or take the matter to court?

Thank you all for the information. I do understand gratuity is applicable only after completing 5 years of service. If the organization refuses to pay gratuity citing the following reasons: running at a loss, no profit, etc., can the employees claim or take the matter to court?

Gratuity and Organizational Profit

Gratuity does not depend on the profit or loss of the organization. Kuldip, even if they cite this reason, they cannot withhold your gratuity. Labour Commissioners are the authority under the Gratuity Act, and you can always file a complaint before them against your employer. Don't worry; you are entitled to gratuity even if the company is running at a loss.

Dear Kuldip,

Our senior members have rightly portrayed the applicability and coverage of the Payment of Gratuity Act (PGA). I would like to add to the discussion with the following points:

- Irrespective of gain or loss, the employer is bound to pay the eligible employee, as per the Act in vogue.

- You should apply for gratuity within 30 days from the date it becomes eligible to the employer. The nominee or legal heirs of the eligible employee can also apply within this time frame. It can even be applied for on plain paper with relevant particulars by the nominee or legal heirs.

- Even after the expiry of the above period, you can apply if you show sufficient reasons for the delay in submitting your claim, and the employer cannot reject your claim on this ground.

- In case of any dispute regarding the payment of gratuity, you may approach the Controlling Authority in writing, either directly in person or through registered post, within ninety days of the occurrence of the cause. The Controlling Authority will then direct the employer on the further course of action. Generally, the Assistant Labour Commissioner of your region will be the Controlling Authority. Here too, you can apply after the expiry of ninety days if you show valid reasons for any delay in approaching the Controlling Authority for their direction.

Regards,
P. Vathiraj

In our company, it was initially not a Ltd. company, but now it has changed to a Pvt. Ltd. company. Recently, 4 months have passed since this change. I have completed 3½ years in this organization. Is gratuity applicable? Is my earlier service considered? Kindly give some suggestions for this.

In our company, it was initially not a Ltd. company, but now it has changed to a Pvt. Ltd. company. Recently, 4 months have been completed since this change. I have completed 3 and a half years in this organization. Is gratuity applicable? Is my earlier service considered? Kindly give some suggestions for this.

If they haven't appointed you afresh and your employment is continued, yes, you will be entitled to your gratuity after the minimum eligibility period, i.e., 4 years and 240 days of service. Please do tell if they employed you afresh or not.

Regards

Changes in the constitution of the establishment are inconsequential insofar as the applicability of the P.G. Act is concerned, and it will not have any negative impact on the length of service rendered by its employees. Conversion of an establishment from sole proprietorship to that of a partnership or to that of a limited company under the Companies Act, 1956, etc., is a mere cosmetic change in relation to the subject matter of gratuity.

Since the application of the Act has already commenced, it will continue to apply notwithstanding the subsequent changes in the establishment's constitution and the number of employees.

Regards,

After the minimum eligibility period, i.e., 4 years and 240 days of service.

Eligibility for Gratuity

In my view, the minimum eligibility period is 5 years of completed service. The judgment of the Madras High Court is not binding in other states.

Regards

Dear Keshav,

This is not according to any judgment only. The same is given in the act itself. Also, there are a lot of judgments on the same, not only one. This is a simple interpretation of the provision. The logic behind this is given below; please understand the same.

Eligibility for Gratuity

Section 4 (1) says about the eligibility for gratuity. The section is given below.

4. 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:

1[Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]

Definition of Continuous Service

Now let us see the definition of one continuous year of service under section 2A.

[2A. Continuous service.—For the purposes of this Act,—

(1) an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including 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 2[***] treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, 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;

(2) 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—

(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than—

(i) one hundred and ninety days, in the case of any employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

(ii) two hundred and forty days, in any other case;

Now, in light of the above provisions, we can say that a person is eligible for gratuity when he completes 4 years and 240 days in the fifth year.

Please revert in case of any further doubt.

To all the members who are closely following this thread:

This is in response to the divergent views being exchanged between our learned members Mr. Kamalkant and Mr. Korgaonkar. In this connection, I would like to invite your kind attention to my reply posted on 25-02-13 for the query on 'eligibility for gratuity' raised by Ashima. Reiterating my brief viewpoint, I add the following in order to clear the cloud of confusion:

Eligibility vs. Entitlement for Gratuity

'Eligibility for gratuity' is, in my considered opinion, entirely different from 'Entitlement to gratuity'. Normally, 'eligibility' makes a person qualified for a certain right under a statute, whereas 'entitlement' enables the same person to stake a claim for the enforcement of that right. The difference may seem very thin and subtle, but the implication is vast and deep. It is always correct that an entitled person is an eligible one, but not necessarily vice-versa.

All will agree with me that what is contemplated under the Payment of Gratuity Act, 1972, is a scheme of gratuity to industrial employees based on a certain length of blemishless service. To be positively brought into the scheme, one should have certain qualifications. In the first place, he should be an 'employee' as defined under section 2(e) of the Act. Secondly, there should be termination of his service on account of superannuation, retirement, resignation, death, or disability due to accident or disease after rendering not less than 5 years of continuous service. But the proviso to the sub-section provides the relaxation that the condition of rendering 5 years of service is not necessary in the case of death or disability. Therefore, in all other cases, if a person wants to take advantage of the gratuity scheme contemplated by the Act, he has to prove that his period of service was continuous for not less than 5 years.

Section 4(1) incorporates the concept of gratuity being a reward for long, continuous, and meritorious service. Adverting to the definition of continuous service under section 2A, the insertion of the new sub-section was consequent on the legislative intervention suggested by the Supreme Court in Lalappa Lingappa v. Laxmi Vishnu Textile Mills Ltd (AIR 1981-SC 852). As I said in my earlier post, it is only for the specific purpose of arriving at the actual number of days worked in a particular period of time in order to ascertain the entitlement of gratuity for that period. In other words, the emphasis in Section 4(1) is on continuity of employment, whereas in Section 2A, it is on uninterrupted employment.

Supreme Court Judgments on Gratuity

While considering the eligibility of a workman for gratuity on voluntary resignation in Dharshan Engg Works v. Controlling Authority (1983 Lab IC), the Supreme Court held that the minimum period of qualifying service for 5 years by a workman for being eligible for gratuity on voluntary resignation under section 4(b) of the Act could not be stamped as sufficiently long minimum in the context of making him stick to the employer. In construing the word 'workman' in section 33C(2) of the Industrial Disputes Act, 1947, in National Building Construction Corporation case (AIR 1972 SC 1579), the Supreme Court held that the word included a dismissed workman also, though in the definition of that word a dismissed workman is included only for the purpose of industrial disputes under section 10. Again quoting yet two other judgments of the Honorable Supreme Court in AIR 1997 SC 628 and ONGC (1997) 2 SCC 42, I conclude my reply with the following observations of the Supreme Court:

"While interpreting a definition, it has to be borne in mind that the interpretation placed on it should not only not be repugnant to the context, it should also be such as would aid the achievement of the purpose which is sought to be served by the Act. A construction which would defeat or was likely to defeat the purpose of the Act has to be ignored and not accepted."

Thank you.

Dear Uma Kanth, Nice reply, but not everybody will be able to understand the difference between both. What we are discussing here is whether a person is entitled to gratuity when completing 4 years and 240 days, which aligns with my personal experiences, or exactly after 5 years from the date of appointment. The Gratuity Act is a beneficial legislation, and when interpreting any provision of such legislation, we must provide the most liberal interpretation possible. In the Lalappa Case (copy attached), the Supreme Court deliberated on the concept of Continuous Services. However, when determining gratuity entitlement, we must consider whether the fifth year completes in 240 days as stipulated in the act or after an exact 5-year period from the appointment date.

In my opinion, 240 days constitute a completed year of service as per the Gratuity Act. Therefore, a person is entitled to gratuity upon completing 4 years and 240 days of Continuous Services with one employer.

Thank you. Regards

Thanks, Mr. Kamal! Simply put, eligibility for gratuity will arise only when the employee completes their 5th year of service in the same establishment, i.e., there is continuity of employment up to 5 years. As you mentioned, if they leave their employment upon completing the 240th day of service, they will not fulfill the required minimum length of service from the date of entry. That's my point.

I find the discussion very interesting, more so for the technical deftness with which you explained the scope of Sec. 4(1) and Sec. 2-A and the expressions 'Eligibility' and 'Entitlement'. However, without going into the legal nuances of the discussion in order to keep it simple, I may say that there is no difficulty in determining an employee's eligibility with reference to Sec. 4(1) where he is in employment under an employer for five years uninterruptedly. However, the difficulty arises when an employee is not able to complete the fifth year or the last 12 months since he gets terminated after serving eight or nine months.

If the eligibility is to be determined solely on the basis of Sec. 4(1), he becomes ineligible. To deal with such contingencies, Sec. 2-A, as you are well aware, has been introduced wherein a deeming provision was incorporated under Sub-Sec. (2)(a) & (b) of Sec. 2-A. This suggests that an employee's eligibility, in fact, needs to be determined with reference to Sec. 4(1) read with Sec. 2-A but not in isolation since Sec. 2-A defines what is 'continuous service' referred to in Sec. 4(1). Thus, though technically, the eligibility is to be determined on the basis of continuous service of 5 years under Sec. 4(1), practically, the Act renders eligible an employee who completed 4 years and 8 months (240 days) or thereabouts. It being so, the view of Mr. Kamalkant finds support in the aforesaid legal provisions.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Thank you, Mr. Saikumar! Yes, I do agree that technically speaking, an employee earns continuous service on the date of completion of 240 days in the preceding 12 calendar months with respect to the date of termination on account of resignation. At the same time, 5 years of continuous service have to be reckoned with respect to the date of entry only. When the date of resignation falls on the day before the actual date of completion of 5 years, certainly, he could not have completed 240 days in the preceding 12 calendar months because every block of 12 calendar months will have to be pushed back prior to the date of entry. Such an untenable approach will result in an unwarranted anomaly. That is why I insist that the definition under section 2A, being for a different purpose, should not be read conjunctively with S4(1) because of the qualifying phrase "not less than five years." When the law prescribes a condition by means of specific time, number, process, gender, or category, or class of people, it has to be strictly observed according to the purpose, and no humane approach emanating from tendencies of grace and compassion will have any room.

With kind regards and thanks again.

Thanks for your enlightened response. While respecting your views on the issue, I am, for the following reasons, unable to persuade myself to subscribe to your view that Sections 4(1) and 2-A shall not be read jointly but independently.

1) Sec. 2-A does not determine eligibility for gratuity. It only provides a formula to the employer to compute continuous service under two situations as envisaged under Sub-sections (1) & (2) of Sec. 2-A.

2) The object of Sec. 2-A is to ensure that an employee does not lose his claim for gratuity by literal interpretation of the expression 'continuous service' as it is not possible for an employee to be literally in uninterrupted service for a given period (say five years, for example) in view of the contingencies of human life which require him to abstain from duty for various reasons like illness, etc., or his services are terminated before he completes a spell of 12 months. Thus, it adopts a liberal interpretation having regard to the spirit and objectives of a beneficial legislation like the Gratuity Act.

3) Sec. 2-A does no more than this. It does not say that an employee is eligible for gratuity. There is not even a whisper about eligibility in Sec. 2-A. No employee can stake his eligibility under Sec. 2-A. An employee asserts his eligibility under Sec. 4(1) only.

4) Once an employee submits his application for gratuity with details of the period of service in the relevant columns, the employer initiates the process of computation of his service period. I would like to refer to the following sequence of steps that take place from the stage of submitting an application for gratuity till the making of a decision to grant his gratuity to corroborate the view that both Sections 4(1) and 2-A complement each other to be read conjointly.

i) First step: Employee submits his application for gratuity with details of the period of service in terms of Rule (7) under Sec. 4(1).

ii) Second step: Once the application is submitted, the scene of action shifts to Sec. 2-A as under.

On receipt of the application, the employer proceeds to satisfy himself whether the employee has completed five years or more by verifying the date of his joining and the date of resignation or retirement or termination as the case may be. He will verify whether the period is interrupted by any periods of break-in-service or if interrupted, whether the interruptions are permissible under law to ensure that the period is continuous. Thus, this whole exercise undertaken by the employer falls within the purview of computation of continuous service under Sec. 2-A. It is inevitable for the employer to conduct this exercise as this is concomitant to ascertaining his eligibility under Sec. 4(1).

iii) Once he is satisfied that the employee was in continuous service for 5 years or more, the employer upholds his eligibility under Sec. 4(1) and grants his gratuity.

Thus, the above procedural exercise, in my view, abundantly substantiates that Sec. 4(1) and Sec. 2-A are as inseparable as the Siamese twins and need to be read conjointly only.

5) If it is so, the benefits of fictional service of one year under subsection (2) of Sec. 2-A need to be allowed to employees in deserving cases.

However, when there is a query seeking to know what is the qualifying service to be eligible to claim gratuity, the proper reply can be five years of continuous service but not four years and eight months.

Regards,
B. Saikumar
Mumbai

Thank you very much for your meticulous and plausible explanation of the contents of S.2A of the Act. I am in complete agreement with you, no doubt. The standoff arises only in the matter of reading together of Ss 2A and 4(1). Right from the outset, what I am consistently saying is that conjunctive reading of both the sections should not be resorted to in order to extract the meaning of the term 'continuous service' mentioned in S4(1) because of the qualifying phrase 'not less than five years' following it. We just have to allow its literal meaning of 'the time lapse of five calendar years' — that's all. On the contrary, the difference in the purpose and context of both the sections will certainly lead to confusion.

Once the employee becomes eligible by virtue of his completion of 5 years of service under the same employer without any break causing cessation of the employer-employee relationship, in case of his subsequent termination due to any reason other than death or disability due to accident or disease, the aid of S2A comes into operation to ascertain whether he is entitled to gratuity for every year of his continuous service including the threshold first five years.

With regards,

Dear Sir/Madam, I worked in an organization for 5 years and 2 months. Now, due to some reasons, I have left the job. However, when I inquired with our employer, they informed me that gratuity is only applicable when the staff strength is 10 or more. If there are fewer than 10 employees, we are not eligible for gratuity payment.

Please advise if I am entitled to receive gratuity. The company is a private limited company.

Looking forward to your reply.

Regards, Vikas Bhagat

It is not binding on your company to pay you gratuity as per law if the employee strength of your company does not exceed 10 at any time. You can only request the company for the gratuity. It is up to the company whether to accept your request or not.

You mentioned that the strength of your staff does not exceed 10. It is not just the strength of the staff alone.

WISH YOU GOOD LUCK!!!

Regards

Provision of Gratuity Policy – Under Payment of Gratuity Act - 1972

Eligibility:

As part of the statute and under the Payment of Gratuity Act – 1972, all employees are eligible for gratuity. For payment of gratuity, the effective period will be calculated from the employee's date of joining.

Formula / Calculation Basis:

For employees who have completed a total service of five years and above, gratuity will be calculated on the last basic salary drawn, divided by 26, multiplied by 15, and the whole amount will be multiplied by the number of years of service. (For this purpose, 6 months and above can be rounded up to a full year's service, and less than 6 months need not be.)

For employees who have not completed a total of five years of service, gratuity will be calculated on the last basic salary drawn, divided by 26, multiplied by 15, and the whole amount will be multiplied by the number of years of service. More than fifteen days working in a month will be considered a full month, and less than fifteen days will not be considered for calculation. For example, an employee who has completed 3 years, 3 months, and 14 days of service will have their gratuity paid for 3 years and 3 months (i.e., 3.25 years).

The booking of provision will be from the day the employee joined the organization and on a monthly accumulation basis. (For booking of provision)

Payment:

Gratuity shall only be payable to an employee upon separation from the company for any reason mentioned below on the above basis:

- On employee's termination, or
- On retirement, or
- On resignation, or
- On death or disablement due to accident or disease.

This will be effective from 1st April 2009.

---------------------------

Dear Friends, I want to know whether gratuity is payable for less than five years of service term (as mentioned above) or not. If yes, how and why is it payable, as I have not claimed from two organizations:

1) ING Life Insurance Co
2) Tata Teleservices

I have mentioned the company names because some of us might know the provisions about these two companies.

Please help me in getting gratuity payment if it is applicable.

Thanks all

I forgot to collect my gratuity from a company I left (resigned) in 2011 after 8 years and nine months. However, the gratuity was marked as paid/collected in the company's records, but it was not credited to any of my accounts. Now, the employer is not cooperating in reconciling this issue, stating that the records have been destroyed and questioning why I have contacted them after so many years. Even my banker (Canara Bank) hasn't provided extensive help, possibly due to their limitations or other reasons, in giving me my or the company's account statement, which could assist me.

Please suggest how I can take corrective action.

Thanks all,

Amitabh

I think your erstwhile employer and yourself are both from Pune. To get your gratuity pending, please take the following steps:

1. Prepare a notice in 'Form I' in duplicate.
2. Send one copy to your erstwhile employer by registered post with acknowledgment due.
3. Retain the other copy of Form I, the post office receipt, and the AD card received back.
4. After 15 days from the date of service of your notice, if a reply is received refuting your claim for gratuity or no reply is received from the employer, prepare an application for direction in Form 'N' in triplicate and submit in duplicate to the Controlling Authority for your area with the copy of Form I, AD card, and any reply received from your employer.
5. Also, present an application for condonation of delay. It would be advisable to engage a counsel for this process.

Please let me know if you need any further assistance.

Regards

Understanding Jurisprudence in Gratuity Entitlement

Jurisprudence is about interpreting the provisions of law in such a way that they seem just and fair. As I already mentioned, and strongly believe, when interpreting any beneficial legislation, we should give the provisions the most liberal interpretation possible so that it favors employees and does not lead to injustice for employers.

I am uploading a judgment of the Madras High Court wherein Learned Justice S.M. Abdul Wahab has given a well-reasoned judgment on the question of entitlement to gratuity.

I would like to request the worthy members of the community to go through the judgment and examine the logic provided by the Learned Justice without delving into the technicalities of territorial jurisdiction.

Regards