Is It Compulsory To Give Gratuity Amount? - PDF Download

The company is a Pvt. Ltd in the IT-Software domain. One of our employees has claimed a gratuity amount. He has completed 6 years and is going to resign next month. Is it compulsory to give the gratuity amount? Is the company liable for that?

Rakesh:

Gratuity payment is covered under a statute, and hence there is no discretion for a company to pay or not to pay gratuity. It has to be calculated and paid as per the Gratuity Act.

Please follow all labor laws unless you have received an exception from the concerned authorities for your company, which is very unlikely.

Dear Rakesh,

If an employee completes 4 years and 240 days of service, and the employer has 10 or more people working under him, the gratuity needs to be paid mandatorily. The calculation formula is given below for your ease:

[(Basic + DA) * number of years * 15] / 26

Any portion above six months shall be considered as a year, and less than 6 months shall be dropped. In the case of the death of an employee, even if he did not complete the minimum working days, his nominee shall receive the gratuity for the time he had worked.

Feel free to revert in case of any further clarification.

For eligibility, the concerned employee must complete 5 years, not 4 years & 240 days in the fifth year.

Dear Mr. Dinesh,

For eligibility, the concerned employee must complete 5 years, not 4 years & 240 days in the fifth year.

Would you please share some incident or case law wherein anybody has been denied gratuity for only completing 4 years and 240 days and not completing 5 years? Because as far as I am told by one Assistant Labour Commissioner, 4 years and 240 days is the minimum eligibility period for claiming gratuity.

Dear Mr. Tyagi,

For eligibility of gratuity, 5 years of service is a must. However, if a company grants gratuity after completing 240 days in the fifth year, then it is acceptable, and the individual is entitled to receive it. The Gratuity Act clearly states in the applicability clause that gratuity is applicable only after the completion of five years. Legally, 5 years of service is required to become eligible for the same.

Under the Gratuity Act of Section 2A, the definition of continuous service is provided.

Section 4

Payment of gratuity.

Gratuity shall be payable to an employee upon the termination of his employment after he has rendered continuous service for not less than five years:

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease.

Therefore, gratuity is applicable only upon completing 5 years of service, and the definition of continuous service can be considered only when an individual is denied payment by the company after completing 5 years. It is noted that the completion of continuous service of five years is not necessary when the termination of employment is due to death or disablement.

Regards,

Dinesh

Dear Rakesh,

In my opinion, the IT companies are covered under the Shop and Establishments Act as the definition of "commercial establishment" includes a trade, business, or a profession. While going through the Delhi Shop & Establishments Act, I have come across a list of establishments/shops where the Government of NCT of Delhi has granted exemption under Section 4 from the operation of Section 11 (Spread over), 14 (Young persons and women to work during daytime), 15 (Opening and closing hours of shops & establishments), and 16 (Close day) of the Act to all establishments pertaining to IT-enabled services and IT industries where IT industries include IT hardware and software.

In view of the above explanation, I feel that as the Payment of Gratuity Act is made applicable to every shop & establishment and employee, you have mentioned, has completed a period of 6 years; hence, he will be eligible to claim for the payment of gratuity. The views of the seniors are welcome.

BS Kalsi
Member since Aug 2011

Dear Dinesh,

It is true that for claiming gratuity, an employee has to complete 5 years of continuous service under the same employer under the Payment of Gratuity Act, 1972.

Section 2A of the Payment of Gratuity Act defines "Continuous service," which stipulates that an employee shall be said to be in continuous service for the said period of one year if the employee, during the period of twelve calendar months preceding the date with reference to which calculations are to be made, has actually worked under an employer for not less than two hundred and forty days.

Sh Kamal Kant Tyagi is not wrong in giving emphasis on the completion of 4 years and 240 days of service for the eligibility of gratuity.

As per the decision of the Madras High Court, if the eligible employee has completed 4 years and 240 days in the fifth year continuously, then he/she must be deemed to have continuously served for one year, and therefore it is deemed that he/she has completed five years and would be eligible for gratuity.

I have a question: "Don't you think that we need to calculate 240 days of actual working for all the 5 years instead of 240 days in the fifth year as mentioned by the Hon'ble Madras High Court in the above-quoted judgment?"

The seniors are requested to shed light on this aspect.

BS Kalsi

Member since Aug 2011

The 240 days are required to be deemed as continuous service for each year of service. If this is the case, the same rule can be applied in the fifth year to establish it as continuous service. This interpretation has been supported by the Madras High Court judgment.

Regards,
Sethupathy
Excellent HR Services, Erode

Please go through the highlighted portion of the attached file.

Regards,
Sethupathy Excellent HR Services, Erode

If the strength of the employees reduces from 10 to 9 during the year, kindly let me know if the applicability of the Gratuity Act continues or not.

The subject matter has been discussed in the forum many times, and members can refer back to those posts for more clarity on the issue of 4 years and 240 days in the 5th year, which is entirely legal. These attachments will help you understand this topic better.

Regards.

Dear All,

Courts give judgments in various cases, and these judgments can only be considered when the act is not clear. Judgments are given based on the circumstances of the case. The Gratuity Act clearly mentions in the applicability clause that gratuity is applicable only after the completion of five years of service. For eligibility for gratuity, one must serve for 5 years.

Many refer to the Madras High Court judgment for 4 years and 240 days, but this cannot be applicable to all cases. If everyone is referring to that case, it should be noted that a judgment in P. Raghuvulua and Sons Vs. Additional Labor Court (1985) states that an employee who has served for 4 years, 11 months, and 10 days is not eligible for gratuity.

Regards,
Dinesh

Dear Jagmohan,

Regarding your query about what "If strength of the employees reduces from 10 to 9 during the year" is concerned, the applicability of the Payment of Gratuity Act, 1972 continues in that situation in view of Section 1(3A) of the Act, which was inserted by Act 26 of 1984. Section 1(3A) of the Payment of Gratuity Act, 1972 reads as follows:

1(3A) - 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.

BS Kalsi
Member since Aug 2011

Dear Rakesh ji,

Answers to your queries undoubtedly,

YES

YES

Normally, I do not respond once the correct answer is given by any of the members unless there is any value addition to it. Still, in your case, I thought of responding here to you in a very specific way as above.

Dear All,

As regards to gratuity on 4 years and 240 days in the fifth year of service, we had many discussions earlier. Views on this issue may differ from individual to individual. I am with the view by member Dinesh2205.

With reference to your query, I am hereby forwarding the judgment of the Madras High Court. Please refer to the same. This case will resolve your query.
Regards.

It is correct that the eligibility for gratuity is 5 years of completed service. It is also correct that services of more than 6 months will be considered for the completion of the corresponding year.

Dear Kumar ji and MRC management, I am well aware of the judgment. Still, I have different views, and the same has been well discussed earlier. I believe that Gratuity is an award given by the company to the employee for their long service. The minimum service requirement is clearly mentioned in section 4(1) of the Act.

It is a separate question and not connected to the current discussion. Such a kind of question in between any discussion disturbs the entire conversation and can also give a wrong impression many times. I also got confused today when I started reading the discussion from the top of the page but then realized that I am on the second page.

My request to the queriest is to ask his question in a new thread. I will reply there. The moderators can delete or shift such kinds of questions. May I request the moderators to do the same?

Dear,

I worked at BSNL for 5 years and 3 months. I resigned in July 2008. I have not received any notice regarding my gratuity from my employer. I have not claimed this to date. My question is: can I claim the gratuity now? If yes, what is the procedure for claiming the same?

Thanks and regards

Dear Kanaka Rao,

The Payment of Gratuity Act, 1972 does not specify any time limit for filing the claim of gratuity. However, the Payment of Gratuity (Central) Rules, 1972 stipulates that an application for delayed cases can be submitted to the employer by the applicant personally or by sending the application through registered post with acknowledgement due. The relevant rule reads as follows:

Rule 7(5) - An application for payment of gratuity filed after the expiry of the periods specified in this rule shall also be entertained by the employer if the applicant adduces sufficient cause for the delay in preferring his claim, and no claim for gratuity under the Act shall be invalid merely because the claimant failed to present his application within the specified period. Any dispute in this regard shall be referred to the Controlling Authority for his decision. Therefore, in the first instance, you need to approach the Establishment Head. If he refuses or disputes the claim, then you have to file an application before the concerned Controlling Authority.

I have quoted the Central rules above. You need to find out the gratuity rules prescribed under the state for which you have raised the query. You mentioned in your email that you have worked in BSNL. Does the abbreviated word stand for Bharat Sanchar Nigam Limited, or is it something else? If it stands for Bharat Sanchar Nigam Limited, please check whether they have created any separate Gratuity Trust for their employees. In that case, you have to find out whether you are covered under The Payment of Gratuity Act, 1972, or under the company's Trust.

BS Kalsi

Member since Aug 2011

Dear Pooja,

I could not understand in what context you have given the reply. Was it for advertising purposes? You have provided a common narration of the Act, which everybody knows. As a Consulting house, we expected new and revealing information on the payment of gratuity.

Regards,
BS Kalsi
Member since Aug 2011

I have a doubt about Gratuity. How do I calculate the gratuity amount in factories? Please clarify my doubts.

Terminated employees are also eligible to claim gratuity from the organization. Please clarify.

Clarification on Gratuity Eligibility

Please clarify, is it compulsory to complete 240 days of service in all the five years? Most companies consider five years as financial years, i.e., April to March. If a person joins after April, they may not complete 240 days in their first financial year. This would mean they would not be able to get gratuity for that first year but completed four years and 240 days in accordance with the judgment of the Honorable Madras High Court.

One who has not completed 240 days in some year/years but completed five years of service would be entitled to gratuity for five years or only for the years for which they have completed 240 days.

Dear All Respected HR Professionals,

Gratuity Benefits: A Consideration for Employees

I have noticed that some professionals here are making decisions based on their egos and thinking about cutting employee benefits. If the law is a little tricky regarding whether gratuity can be claimed at 4 years and 240 days or after completing 5 years, let's consider the advantage for the employees.

In this fast-moving world, if an employee leaves the organization after 4 years and 240 days, what harm is there in providing them with their benefits? It would bring happiness to their family and best wishes to all of you HR personnel. Moreover, many companies purchase gratuity policies from LIC.

Let's think about the employees who work hard for companies. Amounts like lakhs and two lakhs would hardly make a difference for a company where promoters travel luxuriously in business class.

Let's change our attitude, dear HR professionals, and strive to make the world a better place.

Regards

Hi, I am from Delhi and currently working here. I joined my organization on 10-01-2018, as per my salary slip, and my notice period is ending on 23-10-2022.

I have seen many posts but have not found a definitive answer. Some people consider 52 days as week-offs in a year when calculating 240 workdays in the last year, while others say that being employed for more than 8 months in the last year makes one eligible. According to my current company, they have informed me that I am not eligible and need to complete 10 months to be entitled to gratuity.

Now, based on my joining and relieving dates, can someone please confirm if I am genuinely eligible for gratuity or not? If I fall short by a few days, how many days would I need to extend my notice period?