Gratuity Payment Dilemma: Should Companies Pay Without a Fund After 5 Years?

Gratuity Payment Obligation

If a company does not have a gratuity deduction or fund, should it still pay gratuity to an employee who has completed 5 years or 4 years and 240 days of service?

If you know matters concerning gratuity are covered by an Act of Parliament, where is the question of discretion for the employer? All applicable laws, whether Central or State laws, need to be adhered to by all right-thinking and right-meaning organizations.

There is no concept of deduction for gratuity; gratuity does not appear as a deduction on your payslip. It is also not mandatory to form a Trust for gratuity. However, whenever it is due to an employee as per the provisions of the Act, it needs to be paid with no discretion allowed.

Regards,
Dixon Tata Trent, Pune

Thanks for your reply, Sir. One more thing, if a company denies paying the gratuity, what steps can an employee take against the company? Please suggest.

You can approach the concerned Labour Commissioner's office with a written complaint regarding the non-payment of gratuity, along with all the necessary details, such as proof of Date of Joining (DOJ), Date of Leaving (DOL), etc.

Regards,
Dixon

The Payment of Gratuity Act is applicable to:

(a) Every factory, mine, oilfield, plantation, port, and railway company.

(b) Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months.

(c) Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this regard.

A shop or establishment to which this Act has become applicable shall continue to be governed by this Act, notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

Hence, every such establishment has to mandatorily pay the amount to the eligible employees on separation after completion of eligible service. In case of default, the employee can approach the Controlling Authority as defined under the Act.

Regards