Gratuity Eligibility: Does My Notice Period Count Towards the 5-Year Requirement?

Hi all, I am currently working for an MNC software company, which I joined on 15th December 2008. This December 15, 2013, I will be completing 5 years.

Clarifications About Gratuity

I have a couple of clarifications about Gratuity:

• If I quit my current company as of today, will I be eligible for Gratuity? (4 years 10 months as of today)
• Will the notice period also be considered as part of gratuity?

I kindly request someone to help me in this regard as I am clueless. Any help would be greatly appreciated.

Many thanks in advance,

Avinash.

Yes, your continued service is 4 years and 10 months, which means you have completed 240 days. As one year is considered completed as per the Gratuity Act, you have effectively completed 5 years to be eligible to claim gratuity. Notice period days should also be counted as part of the 240 days. Refer to the Gratuity Act for further clarification on any questions you may have.

Cheers!

Mr. Bhardwaj is right; 4 years and 240 days are equal to 5 years, so you are eligible for payment of gratuity.

Thanks & Regards,
Sumit Kumar Saxena

Although gratuity rules state that 4 years and 240 days are considered equivalent to 5 years of employment and therefore eligible for gratuity, it would be better to check with your organization's HR for the exact rules, as interpretations can vary from one organization to another. Yes, the notice period is included as part of employment.

The law does state that the completion of 240 days will qualify to be counted as one year. However, there are conflicting judgments on the issue. Some decisions hold that the first five years (the qualification period for gratuity) will not receive the benefit of the above position, while some have said that it is right to extend the benefit of this even to complete the qualifying period. I would advise you to follow the decision of the High Court under whose jurisdiction you happen to be!

Your employment will be counted until the last day of your employment. Therefore, the notice period will be a part of your eligible service. It is possible that the employer may waive the notice period (even unilaterally) and bring you within the ambit of the myth of 240 days, but this will be rare. I trust the employers not to take such a narrow view of matters, especially when the employee is leaving!

I hope you are not any more confused!!!

Regards,
Samvedan

Please find attached herewith the Payment of Gratuity Act, 1972.

Refer Page No-5

4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on 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,
- (c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

Refer Page No-2

2. Definitions.- In this Act, unless the context otherwise requires,-

- (a) “appropriate Government” means,-
- (i) in relation to an establishment:
- (a) belonging to, or under the control of, the Central Government
- (b) having branches in more than one State
- (c) of a factory belonging to, or under the control of, the Central Government.
- (d) of a major port, mine, oilfield or railway company, the Central Government.
- (ii) in any other case, the State Government.

- (b) “completed year of service” means continuous service for one year.

1[(c) “continuous service” means continuous service as defined in Section 2-A;]

Refer Page No-3

[2A. Continuous Service.- (1) For the purpose of this Act-

- (1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order 4[***] treating the absence as a break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;

- (2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer-
- (a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-
- (i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
- (ii) two hundred and forty days, in any other case:
- (b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than-
- (i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
- (ii) one hundred and twenty days, in any other case;

Regards

Please find attached herewith the Payment of Gratuity Act, 1972.

Refer Page No-5

4. Payment of Gratuity - (1) Gratuity shall be payable to an employee on 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,
- (c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Refer Page No-2

2. Definitions - In this Act, unless the context otherwise requires:

- (a) “appropriate Government” means:
- (i) in relation to an establishment:
- (a) belonging to, or under the control of, the Central Government
- (b) having branches in more than one State
- (c) of a factory belonging to, or under the control of, the Central Government.
- (d) of a major port, mine, oilfield or railway company, the Central Government.
- (ii) in any other case, the State Government.

- (b) “completed year of service” means continuous service for one year.

1[(c) “continuous service” means continuous service as defined in Section 2-A;]

Refer Page No-3

2A. Continuous Service - (1) For the purpose of this Act:

(1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order [***] treating the absence as a break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer:

- (a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:
- (i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
- (ii) two hundred and forty days, in any other case:

- (b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than:
- (i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
- (ii) one hundred and twenty days, in any other case.

Regards.

Dear Avinash and all members, I would like to clarify one important point:

Gratuity Eligibility and Continuous Service

As per the Act: "(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years." This means that 5 years of service is compulsory if the employee has been in continuous service.

The clause of 240 days is applicable only if the employee has not been in continuous service, i.e., if the service has been interrupted for reasons other than sickness, accident, leave, absence from duty without leave, lay-off, strike, or a lock-out, or cessation of work not due to any fault of the employee.

So Avinash, to answer your questions:

1) If I quit my current company as of today, will I be eligible for Gratuity? (4 years 10 months as of today) - If you have been in continuous service, then you have to complete 5 years with the company to become eligible for Gratuity.

2) Will the notice period also be considered as part of gratuity? - Yes, the total period until your last working day is counted for Gratuity calculations.

Hope this helps.

Regards,
Ritesh Shah

Kindly go through Page No-5 for the statement of the Payment of Gratuity Act in the Payment of Gratuity Act, 1972.

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

Kindly go through Page No-3 for the Definition of Continuous Service.

Continuous Service. For the purpose of this Act:

1. An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing orders, rules, or regulations governing the employees of the establishment), lay-off, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Kindly read point No. 2 in the definition of Continuous Service, i.e., if an employee is not covered under point No. 1 for Continuous Service for any period of one year or six months, then the employee shall be deemed to be in continuous service if:

2. Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer:

(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:
(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) two hundred and forty days, in any other case;

(b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than:
(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case.

Kindly check and advise.

Regards.

Dear Mr. Chetan, I have gone through the Act several times in detail, even had debates with my colleagues and friends on the interpretation of eligibility for gratuity. Finally, a practicing lawyer helped us interpret the meaning:

Eligibility for Gratuity

1. If the employee has been in continuous service, he/she has to complete a full 5 years of service. This is clearly mentioned in the Act: "Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years."

2. The statement about 240 days is mentioned in clause 2; Clause 2 is applicable only if the employee has not been in continuous service. "Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1)."

Interpretation of Continuous Service

1. To become eligible for gratuity, the employee has to be in continuous service for 5 years.

2. Continuous service = Uninterrupted Service

3. Service which has been interrupted for the following reasons is still counted as "uninterrupted service": sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing orders, rules, or regulations governing the employees of the establishment), lay-off, strike, or a lock-out or cessation of work not due to any fault of the employee.

Clause 2 becomes applicable only if the employee's service has been interrupted due to reasons other than those mentioned above in point 3. If clause 2 becomes applicable and if the required conditions are satisfied, only then can the point about 240 days become applicable.

Hope this clarifies. If anyone has different views, please provide some court ruling on the matter (other than the Madras High Court).

Thanks,

Regards,
Ritesh Shah

My reply to your queries in seriatim is as follows:

Eligibility for Gratuity

1) If I quit my current company as of today, will I be eligible for Gratuity? (4 years 10 months as of today) - Since you have claimed that you have rendered continuous service of 4 years and 10 months as of today, there is no problem in claiming your payment of gratuity, as the Madras High Court judgment will come to your rescue (Copy Attached). However, you must ensure that you have rendered continuous service of one year in all the years. The Payment of Gratuity Act speaks about continuous service of 5 years for the claim of gratuity.

Notice Period and Gratuity

2) Will the notice period also be considered as part of gratuity? - Normally, the notice period is considered as part of service unless the management contests it.

Regards,
BS Kalsi
Member since Aug 2011