Understanding Gratuity: How Does It Work for Employees with Less Than 5 Years or in Case of Death?

Dear Seniors and Colleagues, I just want to update myself on the below query:

Gratuity Queries

1. In case an employee is on the company's payroll but has not completed 5 years of service, is gratuity not payable to this employee? If yes, for how many years?

2. If an employee is on the company's payroll and has completed 5 years of continuous service, is gratuity payable? If so, for how many years - the actual number of years served or until the year of superannuation?

Please share your views. I have tried to go through the act but am unable to find details of such cases. Someone mentioned to me that in the event of an employee's death, gratuity is payable for the number of years until they would have reached the superannuation age.

Please share your views.

Regards,
Ranjeet

Payment of Gratuity in Case of Employee Death

Following the Payment of Gratuity Act, in the event of an employee's death, the employer is liable to pay gratuity to the dependents of the deceased employee. This gratuity is calculated based on the service rendered by the employee only. For instance, if the total service is 4 years, then the employer's liability is to pay gratuity for four years.

However, if the gratuity is managed under a trust by depositing the annual premium (based on actuarial valuation) with the Life Insurance Corporation (LIC) and includes an additional premium to link it to a life policy, then the LIC will pay the gratuity. This payment will be equal to an amount projected to the age of superannuation of the deceased. The main advantage of making provision for a gratuity fund linked to the policy is that the dependents of the deceased employee will receive a substantial amount. Additionally, for the employer, the additional premium payable to cover this is also very low.

Regards,
Madhu.T.K