Is My Friend Entitled to Gratuity from His IT Job? Understanding Eligibility and Claims

One of my friends worked for an IT company from 2002 to 2013. Currently, he is in a notice period. There was no gratuity paid to any of the employees in that company, nor were any deductions made in the salary payments.

The company was registered as a limited company and has consistently had a staff of more than 12 individuals since 2005. EPF has been deducted from the employees' salaries.

Gratuity Applicability

Is gratuity applicable to the employees? Can my friend claim the gratuity amount, or is the company not liable to pay gratuity unless it is registered somewhere or deducts salaries for gratuity funds?

The company is liable to pay gratuity as it has more than 10 employees and is covered under the PF Act.

Yes, he can claim gratuity if more than 10 employees are working.

Thank you for your replies. In the case of the employee, he is eligible for gratuity. However, for the company, is there a requirement for registration, compliance maintenance, or deduction of any amounts from employees' salaries for gratuity?

It appears that this company has not implemented any such gratuity scheme. Nevertheless, they are registered and do deduct and pay EPF.

Thank you.

During the joining of an employee, the company included the CTC, which encompasses the gratuity amount (if gratuity is part of the company's benefits). It is important to clearly mention this bifurcation in the appointment letter. I would like to suggest that you inquire whether this occurred during your friend's joining process. If the company structured the CTC without including gratuity, or if there was no deduction from the monthly salary for gratuity, then it indicates that there was no gratuity process in place. However, based on your statement, if the company is a limited company, then gratuity should be included with deductions based on the annual CTC.

Please let me know if anyone or any expert believes that there are any changes needed in my thinking.

Regards,
Mimu143

Thank you for your reply regarding the Gratuity Applicability. My friend's company has not included the gratuity in the confirmation letter. It has only stated the EPF alone. Also, in the policy document, it mentions the EPF and Mediclaim Insurance as part of the employee benefits. There is also a clause for a long tenure bonus, but it is not provided to anyone.

So, my friend is unable to claim the gratuity. Is that correct?

Thank you.

A company will come under the purview of the Gratuity Act if there are 10 or more employees. Such companies are liable to submit the notice of opening to the controlling authority (ALC) of that region, with the form available on the net. Gratuity is not to be recovered from employees by showing it in CTC and later paying it. It is paid to an employee as a token of gratitude for his/her continuous service. Gratuity is due within 30 days from the day it falls due. A deprived employee can approach the ALC, seeking justice in the matter.

Dear Sudinair, I have a doubt regarding point number 3. As per my knowledge, gratuity is a part of Cost to the Company (CTC). Thank you for your reply.

Gratuity Claim

According to your statement, your friend can claim the bonus because the clause has been mentioned by the company in writing.

Regards,
Mimu143

Eligibility for Gratuity

To be eligible for gratuity, one must have a minimum service of 5 years. Only then are they eligible, regardless of whether the employer mentioned it in the CTC bifurcation or not.

Gratuity Calculation

The calculation for gratuity is as follows: Last drawn salary divided by 26 and multiplied by 15 days for each year of service.

Registration for Gratuity

There is no need to register for this separately; registration with the Labour Department itself is sufficient.

Regards,
Mohan

Gratuity Eligibility Requirements

As per the Gratuity Act, to be eligible for gratuity, one must have completed a minimum of 5 years of continuous service in the company. The company must be registered and have at least 10 employees working. An individual can claim their gratuity after meeting these requirements.

Regards,
Col TSN Murthy

I have seen that some private organizations show gratuity deduction on the salary slip even at the start of new employment. Is this correct? If a company is not displaying the deduction on the salary slip and is not registered, can an employee still claim the gratuity amount? Please clarify.

I am in total agreement with the reply of Sh. Sudinair. He has, in a nutshell, mentioned the provisions existing under the Payment of Gratuity Act. More elaborately, the conditions for the eligibility of gratuity are explained below:

1. Section 3(b) of the Act mentions that every shop or establishment in which ten or more persons are employed or were employed during the preceding twelve months.

2. As per PG (Central) Rule 3, an employer shall submit a notice in Form A to the controlling authority of the area within thirty days of the rules becoming applicable to an establishment.

3. Section 4 of the Act clearly stipulates that 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, or (c) on his death or disablement due to accident or disease. It is provided further 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.

Some of our members have opined that the gratuity shall not be payable if there is no mention of the same in their CTC. However, I am of the strong opinion that since it is a STATUTORY DUE, the employer is duty-bound to pay the gratuity to the eligible employees irrespective of whether the component of gratuity has been included in the CTC or not and whether a notice in Form A to the controlling authority of the area has been submitted or not.

Regards,
BS Kalsi
Member since Aug 2011

Thank you for your valuable insight. Now, from where I see the case, the company is liable to pay gratuity as per the Payment of Gratuity Act 1972. No deduction shall be made from the employee's salary when it comes to gratuity. However, for PF emoluments, a lump sum of 12% is deducted, and a similar 12% is contributed by the employer.

Requirements for Claiming Gratuity

There are a few requirements on the part of the employee for claiming gratuity:
1. He should have worked for not less than five years for the employer.

The gratuity is calculated as follows: (Basic + DA) / 26 X 15 X Number of Years Worked.

Coverage of the Act

Regarding the coverage of the act for your company, if 10 or more persons have been employed on any day of the preceding 12 months, then yes, gratuity is applicable.

Current Amendments

Gratuity up to INR 10,00,000 is tax-free, and the maximum gratuity payable should not exceed a total of 20 months' wages.

I hope your query is cleared to some extent. And please, other members, if I am wrong anywhere, please do correct me. I am always open to learning.

For people with doubts related to anything in the HR fraternity, you can contact me on my LinkedIn profile Arakanshu Singh - India | LinkedIn or email me at [Email Removed For Privacy Reasons].

Regards,

Your employer is liable to pay gratuity. The employer should have planned and deposited/invested this amount as a gratuity fund with any nationalized bank, LIC, bond, etc.

Thanks,
Gangadharan

Hi All, I have joined an IT company as a trainee and worked for the initial 6 months as a trainee. I joined the company on 26th Aug 2008, so 5 years on 26th Aug 2013. Does that 6-month period count towards the completion of 5 years to be applicable for gratuity? Or do I have to complete an additional 5 years beyond those 6 months of the training period?

Thanks.

Regards,
Gangadharan