Gratuity Payment Dilemma: Can You Claim It if You Cover Your Notice Period?

Gratuity Payment Eligibility Criteria

As per the gratuity payment eligibility criteria, one needs to complete 4 years and 240 days to receive a gratuity payment.

Keeping the above criteria in mind, if an employee has worked for 4 years and 207 days and the remaining 33 days are covered by the employee paying the organization as a short notice period, is he still eligible for the gratuity payment? Can the employee take legal action against the employer if he is not paid the gratuity payment, considering he is covering the 33 days himself?

Regards,
Arun Fijardo

No, he is not eligible. Even the Supreme Court has ruled that 5 years of work means 5 years of actual work. Paying the notice period is part of the contract but cannot be considered as if that person has actually worked in the organization.

Gratuity Payment Eligibility and Legal Considerations

I believe the 240 days clause refers to working days, which would account for a full year of work if we deduct weekends, holidays, etc. So, practically, it amounts to 5 years. Even if we give the benefit of the doubt regarding eligibility with 4 years and 240 days, you are mentioning that:

The person has worked for 207 days. The last working day effectively was the 207th day of the year. Gratuity is calculated with respect to your joining date and last working date. The notice pay that the person would give will be in lieu of the early release that he/she seeks. Also, please note that if the person intends to resign and give a 30-day notice as per the clause, it will be up to the company to decide if they want the person to be released earlier. The company can choose to relieve the person immediately or within a week's time, and in this case, the person would not become eligible for gratuity.

I hope I was able to address your concerns.

Regards,

You are under the wrong impression. Gratuity is payable upon completion of 5 years of service and not before that. The Madras High Court judgment is not applicable to other states. If you are in Madras, this judgment is in your favor, but you should have completed 240 days in the 5th year of your service. Notice pay is a payment in lieu of your short notice.

The PG Act of 1972 clearly stipulates a minimum period of five years for gratuity eligibility with some exceptions. It is only the courts that have made some dilution in the norms to provide benefits (in the last year) to individuals who are nearing completion of the five-year requirement. It is absurd to think that by paying a small sum, you can claim a larger amount, as both privileges are different in nature and cannot be equated. Gratuity is governed by statute, whereas the notice period is a term and condition of your appointment. I suggest that you wait and continue serving your current employer for the remaining days needed to be entitled to gratuity payment.

Regards,
BS Kalsi
Member since August 2011

The minimum period for eligibility for gratuity is 5 years of service, with the first 4 years as full service. In the fifth year, you must work for 240 active days out of the 365 days in the year. This period cannot be waived or condoned. Therefore, you are not eligible for gratuity. It is important to have considered this fact before resigning or giving notice to leave the company.

Regards,
Mahavir Mittal

Legal Implications of Gratuity Payment

This is a litigable issue. Technically, he has not worked 240 days in the 5th year, which is the deciding factor. Had he worked during the notice period, he would be eligible without a doubt. At the same time, his period of service can also be considered, including the notice period. Nonetheless, if you go strictly on the 'contract of employment' basis, but since he was relieved upfront by the company by paying the notice pay, it becomes an issue that can be taken up before the court.

However, in all probabilities, if the employee approaches the authority under the Gratuity Act claiming it, in the name of beneficial legislation, it will go in his favor. I doubt even the high court will interfere in such cases, although without setting a precedent as such [taking the case in isolation]. So I suggest you pay the gratuity and save yourself the litigation trouble. Don't forget the interest and penalty that will be imposed for the delay in payment of gratuity if you lose in litigation. It's just not worth it. Being hyper-technical will not help in this issue as the situation is debatable in legal terms. You need to have a more practical approach.

According to the Payment of Gratuity Act 1972, upon completion of 5 years of work in any organization, an employee is eligible for gratuity with continuous service without any breaks.

Clarification on Gratuity Eligibility

I have noted that 4 years + 240 days = 5 years of service. However, it must be considered that the 240 days should be the working days. Additionally, the notice period should also be taken into account for the payment.

Thanks & Regards,
Sumit Kumar Saxena

Sumit Kumar,

Yes, the notice period is considered in the payment period as the act states that the working period is to be calculated from the date of joining until the last working date. However, if the employer accepts your resignation and relieves you earlier, in that case, it may happen that one loses gratuity after serving almost the full period only for a couple of months.

Hence, when someone has already served for 4 years and 8-10 months, we normally advise completing the full 5 years and then resigning so that even if the company is willing to relieve him/her tomorrow, he/she still stands eligible.

Hope this helped...

Eligibility for Gratuity in Case of Forced Resignation

I want to add one situation for further discussion on Gratuity. If any person worked for, say, 4 and a half years, then as per the Act, he is not eligible for Gratuity. But if he is asked to resign by the company and immediately relieved, then whether he is eligible for Gratuity as he is not going by his will? Also, note that he is not fired for his performance, behavior, etc.

Regards,
Vinod

Irrespective of resignation/retirement/termination, if the person does not complete 5 years of continuous service on his or her last working day, he/she will not be eligible for gratuity. The only relaxation for the 5 years of continuous service is in the case of death and partial/full disablement, which do not allow an employee to continue his/her services any further. Only in these two cases, the due gratuity amount is paid to the nominee stated by the person.

Hope this helps.

While I agree with Ankita ji completely, I would consider the following situation differently in which the employee is not allowed to complete 5 years of service through no fault of his own. If I were the employee, I would demand gratuity. If I were the employer, I would accept such a demand from the employee.

Gratuity Payment Under the Payment of Gratuity Act, 1972

Under the Payment of Gratuity Act, 1972, Section 4 states, "Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service of not less than 5 years, on superannuation, retirement, resignation, death, or disablement due to accident or disease. Continuous service of 5 years shall not be necessary where the termination of the employment is due to death or disablement."

Regards,
Srinivas B