Understanding Gratuity: Can You Claim It Twice and What Counts Towards Entitlement?

Queries Related to Gratuity

I have a few queries related to gratuity:

1. Suppose an employee works for 11 years continuously in any organization. Can he take gratuity twice, say after 5 years and then after the next year?

2. Can we count the notice period for entitlement to gratuity during the full and final settlement?

3. I have seen various comments; some say a person should have worked for 5 years for gratuity entitlement, while a few say he should have worked for 240 days in the 5th year. Which one is correct as per statutory provisions? (big confusion)

4. What is the purpose of gratuity insurance? Because in a few CTC structures, gratuity as well as gratuity insurance are both part of CTC.

Regards

Understanding Gratuity: Key Points

Gratuity is not a bonus that you can claim every 5 years. It is actually a retirement benefit that the company pays to employees as gratitude for putting in long service. However, these days, people normally do not stay with the company for more than a couple of years.

Eligibility for Gratuity

Gratuity can be claimed and paid only once, i.e., at the time of retirement or resignation (if the person completes at least 5 years of service). Yes, you have to count the notice period as part of the service, as the person was actually working with the company until his/her last day.

Clarification on Service Duration

Regarding the confusion about 5 years and 4 years and 10 months, if we adhere to legal provisions strictly, a person is eligible if they have put in 4 years and 10 months of continuous service (they must have worked for 240 days continuously in the fifth year).

Gratuity Insurance

Gratuity insurance is the amount of insurance payable to the family along with the gratuity in the event of the employee's death.

I hope this solves your queries.

Thanks,

Avika

Provision of Gratuity Insurance

What is the provision of gratuity insurance and how can that scheme be availed? Why are gratuity and gratuity insurance both part of CTC?

Regards

As per my knowledge, normally, gratuity insurance is a part of the Group Gratuity Scheme Policy taken by companies. Both gratuity and gratuity insurance are part of the Cost to Company (CTC) as the employer pays the premium/contribution towards these policies/funds every year.

Thank you for sparing your precious time. I hope you don't mind my question bombardment. One more query on gratuity: Suppose a person dies at the age of 45 and worked in a company, let's say, for 6 years, and his retirement age is 58. How will we compute gratuity? Will it be (6 + (58-45)), i.e., 18 years, or until the death of his nominee? How will the gratuity be distributed among dependents, and what is the rate of distribution and the age up to which it is payable? Will the gratuity be computed at the same rate as during employment, or does death make any difference?

Please guide.

Regards

The reply to your queries is given below in seriatim:

1. Suppose an employee works for 11 years of continuous service in any organization, can he take gratuity twice, say after 5 years and then after the next year? An employee is not allowed to receive the payment of gratuity twice for every completion of 5 years in the total period of service of 11 years. Section 4 very clearly stipulates that gratuity is payable to an employee on the termination of his employment after he has rendered continuous service of not less than 5 years. The payment of gratuity twice is only possible if you have two breaks of service after every 5 years of continuous service.

2. Can we count the notice period for entitlement of gratuity during the full final settlement? No, the notice period is not allowed to be counted while computing a period of 5 years of continuous service. A clear-cut 5 years of continuous service is required for the entitlement of gratuity. Although all authorized leaves are allowed to be counted towards computing the continuous service of 5 years. You may refer to Section 2A of the Payment of Gratuity Act, 1972.

3. I have seen various comments; some say a person should have worked for 5 years for gratuity entitlement, few say he should have worked for 240 days in the 5th year. Which one is correct as per statutory provisions (big confusion)? You are advised to go through Section 2A of the Payment of Gratuity Act, 1972, which stipulates that an employee shall be deemed to be in continuous service for one year if he completes 240 days or 120 days in a period of six months.

4. What is the purpose of gratuity insurance because in a few CTC structures, gratuity as well as gratuity insurance are both part of CTC? I am not very clear on this aspect. You may refer to Avika's mail where she has mentioned that both gratuity and gratuity insurance are part of the CTC as the employer is paying the premium/contribution towards these policies/funds every year.

Regards,
BS Kalsi
Member since Aug 2011

[QUOTE=saswatabanerjee;2080555]Avika,

Your suggestion could end up putting the company into serious trouble. In case of death, the company should send a notice to the Authority under the Gratuity Act with the details of the gratuity due and the claimants. They need to distribute the amount to the claimants following the instructions issued by the Authority. In case of a dispute among the claimants, the company should just deposit the amount with him and let him deal with it as he feels necessary.

Dear Saswata, as far as I know, if the employee has made a nomination, the money would go to the nominee(s). Otherwise, as I wrote, it would go to the people who are entitled as per the succession certificate or will. If not, it goes to the legal heirs. The query that I answered was not about the procedure of the Gratuity Act but about who would get the money. I hope this clarifies the matter.

My point was (sorry if the way I said it made it look any different) that if there is any dispute as to whom the money should go, just inform the authority under the act (mostly the government labor officer) and let them handle it. If the nominee is stated and there is no counterclaim, it's okay. Otherwise, it causes a major problem and raises the risk of having to pay additionally later.

I specifically put this point first because most people do not realize this danger (and I have seen it happen a few times) and secondly because it's a natural extension of what you posted. Again, I apologize for my choice of wording if that was wrong.

I would like to know if an employee works for 5 years and 6 months, i.e., joined on 1st July 2009 and leaves on 31st Dec 2014, should we consider their number of working days as 5 years or round it off to 6 years? Kindly share your views, quoting any judgments if available.

Regards,
Priyanka

With the continuation of my above posting, I would like to know how to calculate the gratuity. Kindly provide me with your valuable views so that employees receive fair treatment for the services they have offered.