Gratuity Confusion: Does My Training Period Count Towards Service for Payment?

I am currently working in a reputable engineering company. I joined the company on 4 August 2008 and had a bond of 4 years. In my bond, it is written that the training period (not contract), which is for 1 year, shall not be considered as a service period. So, if I resign on 4 August 2013 (completing 5 years in the company), my employer has said that it is not applicable for me since the training period is not considered as service.

I have read all the threads on CiteHR, which show that if there is continuous service after the training, then it should be considered "in service." Additionally, for the training period, they had deducted PF from our salary.

Gratuity Query

My second question is, if I resign on 5 July 2013 and serve a notice of one month, will gratuity be payable? If gratuity is payable, please suggest how I can prove it to my financial officer. Please provide some backup documents and case studies.

Thanks,
Prakash Rathi

Eligibility for Gratuity Benefits

If you have worked for 5 years continuously, then you are eligible for gratuity benefits. The training/probation period, etc., will be counted as a service period. Any contract term that is against the law/act of the land is null and void from the very beginning.

Regards,
Kamal

If you resign after 4th August 2013, you will complete a period of 5 years of continuous service, whether it may be as a Trainee, Temporary, or Permanent employee, and you will be entitled to Gratuity as per the Gratuity Act. It is not the will and wish of any employer to consider some of the periods as in service or not. If you resign before 4th August 2013, you will not be entitled to Gratuity.

Regards,
Ramesh Rao
HR-SPML

As per the details provided by you, I can suggest these steps. You have successfully completed your training for one year and also completed your bond period in the organization. Your total service as of 4-Aug-2013 is 5 years completed. Now, among these 5 years, 1 year is your training, which is not considered as a service period as per your bond with the company. So now you are left with 4 years of continuous service after the training. You need to apply for gratuity after completing another 6 more months of service in the company. According to the Gratuity Act and the recent amendment by the law, an employee should have completed 4 years 6 months or more of service in the company to be eligible to claim gratuity. Then, you can apply for resignation and approach your finance person with the service completed details for the processing of gratuity.

Regards,
Chandana Hyma
HR Professional

Thank you all for your reply.

Request for Documentation and Clarification

Kamal Prasoon Sinha Sir, please provide me with some documents for the same or some method to prove it.

Notice Period and Service Period

Ramesh Rao Sir, does it mean that the notice period will not be counted as a service period?

Training Period and Gratuity Concerns

Chandana Hyma Sir, please tell me why the training period shall not be considered as in service, even though they have deducted PF for the same period. If I want to resign in August 2013, will I lose Gratuity? Can some senior member shed light on this issue?

Understanding Gratuity and Continuous Service

You received PF contributions from the training period, which itself proves that you have been in continuous service since the training period. In your case, the 4-year bond is related to your employment period for the retention policy of your employer. Your bond with the employer cannot dictate the Gratuity Act. According to the Gratuity Act, continuous service means without any break (discontinuation) in service only. The continuous service may include the training period, probation period, and permanent employment, whatever it may be. The notice period will not be counted in the continuous service period.

Reckoning of Service Period

One more thing to note is that the reckoning of the service period will be considered after 5 years of continuous service as follows:

- Anything over 6 months will be treated as one year. For example, 5 years and 5 months will be treated as 5 years only, and 5 years and 7 months will be treated as 6 years. This reckoning of anything over 6 months will be considered only after the completion of 5 years of continuous service, but not for less than 5 years of continuous service.

Regards,
Ramesh Rao
H.R-SPML

Points to Consider Regarding Training and Service Period

- What were you doing during training? Were you doing actual work, or just learning?
- Was it defined as an apprenticeship under the Apprentice Act or standing orders?
- When was your appointment letter given? Did you receive an appointment letter after the completion of training, or before training started?

A little modification in the original query - Actually, it was written in the Appointment Letter that the training period shall not be considered as service.

Ankita Mam,
Actually, I had to serve a total of 4 years under bond, which includes the training period as well. My question is, if PF was also being deducted during the training time, then should that be considered as a service period? As per your reply, I understand that I am eligible for gratuity if I resign on 4th August 2013.

Saswata Banerjee Sir,
I was given an Appointment letter in August 2008 with the subject as "Appointment as Engineer Trainee-2008". Then in August 2009, I received a letter with the subject as "Confirmation of your Appointment", wherein we were absorbed into the company's Executive cadre. During my training period, I underwent 4 months of Educational training at MIT Pune, followed by 8 months of "On Job training (working on projects but considered as learning the work)".

Please provide some guidance on how I can claim my gratuity as the Company is currently not accepting the same.

Dear All,

A little modification in the original query - It was actually stated in the Appointment Letter that the training period shall not be considered as service.

Ankita Mam, I had to serve a total of 4 years under a bond which includes the training period as well. My question is, if PF was also being deducted during the training time, should that be considered as a service period? As per your reply, I understand that I am eligible for gratuity if I resign on 4th August 2013.

Saswata Banerjee Sir, I was given an Appointment letter in August 2008 with the subject as "Appointment as Engineer Trainee-2008." Then in August 2009, I received a letter with the subject as "Confirmation of your Appointment," where we were absorbed into the company's Executive cadre. During my training period, I underwent 4 months of Educational training at MIT Pune, followed by 8 months of "On Job training (working on a project but considered as learning the work)." Please provide a method through which I can claim my gratuity as the Company is currently not accepting the same.

You are indeed eligible for gratuity as you have completed 5 years of tenure. Regarding July's resignation, if you can wait for 1 month's time, why risk it? Gratuity is a substantial amount to let go. To fulfill the continuous service term, working for 240 days is sufficient but there is always a debate on whether the eligibility starts after 5 years or even after 4 years and 240 days of service. My suggestion is to wait for a month before submitting your resignation.

Hope this information is helpful.

Regards,

Sorry, but there is a good chance you are not eligible. Out of the 5 years, 4 months are spent in classroom sessions, and another 6 months are spent on projects. This will support the employer's stance that the first year is not considered employment or service. They can certainly argue this for the initial 4 months when you were at MIT and not yet working. If others from your MIT class also had to undergo on-the-job project work, it will further strengthen the employer's position.

Nevertheless, you may attempt to address this issue through the gratuity authority. However, keep in mind that by challenging the company, you may receive negative feedback in any future background checks. Are you prepared for that?

By the way, your location is shown as the USA. Are you working in India or the USA? Because the applicable laws differ between the two countries.

Dear Mr. Saswata Banerjee,

Spending 4 months in a classroom session and another 6 months on projects will in no way support the employer's stance in denying gratuity benefits. The moment an employment contract (employment letter) is issued by the employer and accepted by the employee, an Employer-Employee relationship is established, and the employee is eligible for all statutory benefits.

Denying this individual the gratuity benefit is illegal and an offense under the Payment of Gratuity Act.

Understanding the Payment of Gratuity Act

The Payment of Gratuity Act clearly defines the term 'EMPLOYEE.' No manipulation or twisting of words is possible. This act does not make any distinction between trainees, probationers, casual, temporary, etc.

Encouraging Advocacy for Statutory Rights

I also want to address whether it is appropriate to suggest refraining from asking for statutory rights just because the employer may provide negative feedback. I represent Employers and have over 12 years of experience in such matters, and I completely disagree with this approach.

We should encourage individuals to speak out against injustice and not remain silent out of fear of negative feedback. Guidance should be positive, regardless of the circumstances.

Regards,
Kamal

Legal Implications of Training Periods in Employment

The fact that the appointment letter states it will not be considered part of the service period, coupled with the fact that he was not in the job for 4 months, is enough to establish that at least those 4 months are not to be counted in the service period. The next 6 months can be contested; I do not know what decision a court will make on that part.

Just because a matter is negative does not mean you should suppress it and give false hopes to someone seeking your advice. I believe in providing a balanced view and letting the person make their own decisions as to whether it will be worth pursuing. They need to judge whether 2.5 months' salary is worth potential negative feedback from their first employer later in life.

By the way, I do not consider it injustice when he himself has signed a letter accepting training on the grounds that it is not to be counted as a service period. In any case, I do not care about justice, only about the legal impact of the circumstances and the impact on his future career. As I have mentioned, he is the best judge of whether he will or will not proceed on a particular path.

Statutory Rights and Gratuity Benefits

Spending 4 months in a classroom session and another 6 months on projects will in no way support the employer's stance in denying gratuity benefits.

The moment an employment contract (employment letter) is issued by the employer and the same is accepted by the employee, an Employer-Employee relationship is established, and the employee is eligible for all statutory benefits.

Denying this individual the gratuity benefit is illegal and an offense under the Payment of Gratuity Act.

The Payment of Gratuity Act is very clear in defining the term 'EMPLOYEE.' No manipulation or twisting of words is possible. This act does not make any distinction between trainee, probationer, casual, temporary, etc.

I also want to question whether it is appropriate to suggest not to ask for statutory rights just because the employer may give negative feedback. I represent employers and have over 12 years of core experience in such matters, but I completely disagree with you.

We should encourage people to speak out against injustice and not remain silent out of fear of negative feedback.

Guidance should be positive, not negative, for whatever reasons.

Regards,
Kamal

1. The employer is deducting EPF contribution from his salary from day one. It means this individual was employed on wages from the day of his appointment. The Payment of Gratuity Act clearly defines an employee as "any person (other than an apprentice) employed on wages." If this person was receiving wages, then where is the dispute in treating him as an employee? Attending a class or playing on the ground does not dispute his claim as an employee.

2. Any clause mentioned in a contract that is against the law of the land is null and void from the very beginning. So even if there is something mentioned in the appointment letter that contradicts the act, it has no value at all.

3. In M Selvadurai vs. Neyveli Lignite Corporation Ltd, 2011, LLR 457, the Hon. Madras High Court ruled that "Gratuity act should not be denied to an employee merely on the basis of the undertaking signed by him that he will not claim gratuity for the past period."

Regards,
Kamal

The problem, Kamal, is not with what's in the letter. It's with the fact that the person was in college for 4 months and not working. He was not coming to the factory, not doing work of any kind. For the next 6 months of project time, is it shown as attendance in the muster? Or is it shown as part of college attendance? It is very likely that the courts (and the authority under the Gratuity Act) will consider that period as not in service. The company will show that they were doing this as a part of their CSR activity or something, and that they paid PF as a goodwill gesture. If packaged properly, it will stick. The employee must take that possibility into consideration. If he can convince the Labour Commissioner (or the designated authority) that it was a service period, then so much the better for the employee.

Clarifications on Training and Service Period

There are a few clarifications I want to make regarding your reply.

• My work is purely office-based (I am in the design field); I do not go to the factory.

• My company's work profile is EPC/CEPCM Project. As I mentioned, during the remaining 8 months of training, I am working on these projects as assigned by the company.

• During the training period, although we were in a college classroom, our timesheet (which measures attendance in our office) was being filled as "ON OFFICIAL TOUR." After that, we had to fill our timesheets according to the work we had done, but that fell under "ON THE JOB TRAINING."

• I have all attendance records with me. However, after reviewing all the replies, I realize that I may need to file a complaint if my company does not provide me with gratuity. Is there no way to clarify to them that the training should also be considered as "IN SERVICE," especially if there is no discontinuity between the training and actual service?

Thank you.

In reference to your quote:

As an IT person, I have experienced this - IT companies hire lots of people in anticipation of a project, give them an appointment letter, orient them, and induct them. However, if the anticipated project is not secured, all these people are made to sit on the bench (doing nothing) until the next project is bagged. Is this the employee's fault?

The employee-employer relationship is established from the day the appointment letter was issued by the company and signed by the person. Until the point the person signs the appointment letter, we call him/her a candidate. Thereafter, he becomes an employee.

Secondly, getting work done and appointing the right work is the task of the employer.

Prakash was given wages/salary from the very first day, and all the statutory deductions were made. Even if we have to give the benefit of the doubt that he was working as an apprentice for the said 4 months or 12 months, I do not think apprentices are covered under the PF act. So, there are no grounds to deny the service.

About the service bond, I would like to clarify that as per the bond, Prakash is expected to serve for a minimum of 4 years post 1 year of training. It didn't mention anything about the said 1-year training period and has not linked it to the employee-employer relation.

I hope this was able to convince you that he's very much liable for gratuity.

Hi Prakash,

Gratuity Considerations for Training Periods

Training is a part of continuous services and should be considered for gratuity. In case of resignation, if an employee completes five years of service before the last working day, gratuity is payable regardless of the resignation date. Five years of service must be completed for the 0.5 clause to be applicable, but not before five years.

Regards

By all means, file a complaint with the gratuity authority if the company refuses. Before that, file an official request for gratuity in Form I as required by the act. Let the company issue a formal refusal, which you can take to the authority. It's a good thing you have all details with you.

What I was trying to warn you about is that the company has some grounds for refusing to count the first 4 months. Irrespective of what the timesheet says, you were not in the office but at a classroom training in a college. That can be construed as not in service. They will claim that as a part of CSR, etc., they paid for your training and gave you a stipend. Be ready for that and prepare to counter it.

On your side, the wording of the appointment letter, followed by the "confirmation letter" and the bond applicable from day one, along with their decision to pay PF from day one, are the positive factors. Ultimately, it is the way a matter gets presented in court or before the labor officer that counts.

Clarifications on Training and Service

1. My work is purely office work (I am in the design field), I do not go to the factory.

2. My company's work profile is EPC/CEPCM Project, which I have mentioned that in the remaining 8 months of training, I am working on these projects as assigned by the company.

3. During the time of training, though we are in a classroom of a college, our timesheet (which is a measure of attendance in our office) was being filled as "ON OFFICIAL TOUR." After that, we have to fill our timesheet according to the work we had done, but that was under "ON THE JOB TRAINING."

4. I have all attendance records with me.

After going through all the replies, I find that I have to file a complaint sort of thing if my company is not providing me gratuity.

Is there no method to clear their logic that the training should also be considered "IN SERVICE" if there is no discontinuity between the training and service?

Regards,
Prakash

I am a man, not a woman :) Anyway, what everyone seems to have missed is the nature of training. The employee was not given normal training on the company premises but was paid to do a 4-month course at a university/college. During that time, there was no connection with the office. It is a ground the company is going to use to cut off at least the first 4 months, and they are likely to be able to convince the authorities on it. He needs to be forewarned and prepared for it.

Accepting someone as an employee under one act/legislation (EPF) and denying the same under another act/legislation (Gratuity)... Who will agree with this? If such a stand is taken by the employer, the court will not only disapprove it but may also pass strictures against the employer as it is nothing but manipulating the terms of the legislation. Denying this individual Gratuity benefits on CSR grounds cannot be accepted as he was receiving wages and not any stipend or scholarship.

Sponsorship Agreement and Employee Benefits

I have a sponsorship agreement signed with future employees where we sponsor them and bear the training or educational expenses. In such cases, we pay them a stipend or scholarship; we don't pay a salary (wages). Even if we accept that the employer's intention was not wrong, rather it was their goodwill gesture to cover the individual under EPF, I would say the employer was not properly advised on the subject and has chosen a wrong path to execute their idea.

I am seeking further clarification on an issue.

Date of Joining and Wage Classification

In my I-card and in the system, the Date of Joining is written as 04-08-2008. However, when it comes to the wages or stipend, I am unsure about the appropriate term to use. According to the appointment letter, it is referred to as a stipend. Yet, in our payslip, there is a detailed break-up similar to that of a salary. Therefore, I am uncertain whether to consider it as a salary or a stipend.

Your guidance on this matter would be greatly appreciated.

Thank you.

Clarification on Date of Joining and Stipend vs. Salary

Hi Prakash,

Regarding the Date of Joining, as mentioned in your I-card and the system, it is recorded as 04-08-2008. This indicates that in August this year, you will complete 5 years of continuous service.

Understanding Stipend vs. Salary

Concerning the wages or stipend, there is some confusion. According to the appointment letter, it is referred to as a stipend. However, the pay-slip provides a detailed breakdown similar to a salary. This raises the question of whether it should be considered a salary or a stipend.

As previously mentioned, apprentices are not covered under PF or related acts. Therefore, even if the term "salary" is used and PF is deducted and deposited with PF authorities, it serves as further evidence of an employee-employer relationship.

Definition of Stipend

A stipend is a form of salary, typically for an internship or apprenticeship. It differs from a wage or salary as it does not necessarily represent payment for work performed. Instead, it is a payment that allows someone to be exempt partly or wholly from waged or salaried employment to undertake a role that is normally unpaid or voluntary, or which cannot be measured in terms of a task. Stipends are usually lower than what would be expected as a permanent salary for similar work.

Source: Stipend - Wikipedia, the free encyclopedia

To reiterate, since PF is deducted from your salary, it cannot be classified as a stipend. Further information on the difference between salary and stipend can be found on this forum. A relevant attribution by Mr. Dinesh Divakar states:

"Stipend is paid under the provisions of the Apprentice Act 1961. The minimum amount is decided and revised every year by the Government. However, employers have the liberty to pay more than what is stipulated. Stipend is paid to apprentices. They are not employees, either regular or contractual. Provisions of PF and ESI are not applicable for apprentices when they receive a stipend."

Attribution from: CiteHR Discussion

Additional Resources

- Apprenticeship Rules
- Training of Employees - Need and Importance of Training

Regards,

If you resign on 5th July 2013, then considering a one-month notice period, your last working day would be 4th August 2013. This means you complete your 5 years on 3rd August 2013, after office hours. For the calculation of services, only the last working day is considered, not the date of resignation. Here, I seek the guidance of seniors…

Your statement is 100% correct. However, if an employee submits their resignation with a one-month notice period, the employer has the right to accept the resignation immediately by paying one month's salary in lieu of the notice period. In such an instance, the employee is not entitled to Gratuity. To avoid this situation, an employee should resign only after completing five years of continuous service to be eligible for Gratuity.

Regards,
Ramesh Rao
H.R-SPML

Dear Prakash,

I have gone through your query and all the responses with care. I had thought of refraining from commenting, but I can empathize with your rising concern on the subject of gratuity.

I totally agree with the analytical comments of KPrasoon, which are in conformity with the laws on gratuity and followed to the letter, as well as in spirit, by all good companies. Saswatabanerjee has also rightly cautioned you about the subterfuges adopted by bad companies to deny their employees their rightful and lawful dues. Ankita has summed up the situation comprehensively.

In my opinion, what matters most is what kind of company you are working with. As one is aware, there are companies which are the best places to work, as they provide more than what the law asks for or stipulates. It is well known that the law stipulates only the minimum, and a good employer is free to give more benefits to its employees.

In such companies, for example, they do not even restrict gratuity to a minimum service of five years. Also, in the last year of service, a period exceeding six months (which is even lesser than the stipulated 240 days) is reckoned as a full year for the payment of gratuity. Additionally, if an employee has completed certain years, say thirty years of service, then instead of fifteen days' salary for every completed year of service, they give a full month's salary for every completed year of service. These are the hallmarks of a great company - to be better than what the law and acts prescribe as the minimum!

Then there are good companies where legal compliance is complete; they do not violate any stipulations of the law. Finally, there are companies which are called so, as they just manage to register themselves as companies and in reality are just a proprietor's business outfit. In such companies, there is always an attempt at hoodwinking the law, trying to find loopholes in the law, and exploiting the employees to the maximum extent feasible.

These penny-pinching kind of companies always attempt to do the following, which is a sure indicator of their philosophy and company policy:

- Find ways to avoid payment of gratuity (by attempting to reckon less service than actual).
- Reduce the company payables in the case of PF (by bifurcating even the minimum wages; or capping the PF at Rs. 780; keeping the basic pay low; using cash reimbursements, etc.).
- Try to reduce the accrued leave by using sandwich leave concepts or clubbing Sundays/weekly off or closed holidays in the leave period, etc.

In your case, what the company will do depends on what kind of company it is. From your description, I gather that it's a good and reputed company. If it is so, then rest assured, you will not be denied your gratuity. There are two important points in your favor:

1. Your PF contributions have been deducted from the very outset, which signifies your status as an enrolled employee.

2. The clause in the appointment letter stating that the training period is not to be counted as service is fairly standard and is applied wherever there is such a long period of training involved, such as for Management Trainee, Executive Trainee, or Engineer Trainee, etc. Such persons are always considered as trainees, whose services can be terminated on non-completion of training or unsatisfactory performance during training. In both cases, they cannot be taken as employees and posted elsewhere; rather, their services are terminated. This is the actual purpose of having that clause - that services will be counted only after satisfactory completion of training.

3. After training, once such a trainee is absorbed and regularized (generally a confirmation letter/ Part - 2 order is issued) and he is posted, his service or Date of Joining is reckoned with the earlier/original date of joining.

In any case, as already pointed out, anything that is contrary to the act shall not be considered. Thus, no company policy can run contrary to the provisions of the act, and you cannot be denied your rightful claim.

Accordingly, it would be better if you discuss the matter in confidence with your HR manager and based on the feedback, act accordingly.

Do keep us informed of the developments.

Warm regards.

What Ankita said is exactly right. Why don't you wait for one month to complete your 5 years of service? However, as per your appointment letter, you shall be entitled to gratuity after 05.08.2013 only. So, wait until August 2013 and enjoy the gratuity benefit.

Regards,
KHS

Yes, you are eligible for your gratuity. The law states that any employee who completes a tenure of 5 years is eligible for gratuity. In this employment, it involves probation, notice, and all. Hence, you can avail of your gratuity.

Gratuity Eligibility and Apprentice Status

Further to my query, I have resigned on 24th August, and my last day in the company is 24th September 2013. According to the reply received, I am eligible for Gratuity. However, our Finance department has refused to provide the gratuity, stating that the training period is not considered as service. In their view, a trainee is considered an Apprentice, but it is not mentioned anywhere in the letter.

Steps to Address Gratuity Issue

Please advise me on the steps I should take to address this issue. Also, could you clarify whether PF and EPS are deducted for apprentices as well?

Thank you.