Am I Eligible for Gratuity with a 72-Day Shortfall in My 5-Year Term? How Do I Apply?

I joined my company on 05-10-2009 and will be leaving on 25-07-2014, resulting in a shortfall of 72 days for the 5-year term. Our office operates 5 days a week with Saturday and Sunday as holidays. Am I eligible to apply for gratuity? If so, what is the procedure?

Thank you.

Regards

You are eligible for gratuity after the completion of 5 years; only then are you liable to take advantage of gratuity.

Gratuity Calculation

Gratuity calculation: Last month's salary drawn * 15 * number of years of service completed / 26

Eligibility for Gratuity Under the Payment of Gratuity Act, 1972

As per Section 2-A, point (i) of the Payment of Gratuity Act, 1972, continuous service is defined as an employee working for 240 days in a year, completing one year of continuous service. If an employee has completed 240 days in the fifth year, they are eligible. These 240 days include actual working days and approved leave days.

Regards.

Very strictly speaking, the 240 days rule applies to casual employees, with whom there is no employee-employer relationship on the days the employee is absent. For permanent employees, the employee-employer relationship is deemed to exist even if the employee is on leave. This is why only leave without approval (days the employee remained absent without the employer's knowledge) is considered a break in service. All leave days, whether paid or unpaid with the employer's approval, are counted as days worked for the purpose of calculating gratuity.

Therefore, for regular employees, 5 years of continuous service is mandatory. The qualifications of 240 days above the ground and 190 days below the ground are conditions for determining continuous service and are considered in disputes regarding permanency. A casual/badli employee is in continuous service if they have worked for 240 days in a year, and this does not necessarily apply in all cases. In Metur Bearsel's case, the Madras High Court held that service of 240 days in the fifth year makes the employee eligible for gratuity; however, this cannot be generalized in all cases.

Madhu.T.K

Hi Suhas, for eligibility for gratuity, we will consider whether he has completed 5 years of service or not.

Gratuity Eligibility Update

Regarding gratuity eligibility, in the past, gratuity eligibility required completing 5 years of service. If a female employee availed maternity benefits, it did not affect the eligibility criteria.

In the recent amendment, employees are now eligible for gratuity after completing 240 days of service.

The gratuity formula is calculated as basic salary divided by 26, multiplied by 15, and then further multiplied by the number of years of service.

Regards

I would like to know if we have fewer than 10 employees, the contract is continuous and renewed every four years, and it is mentioned in the contract that gratuity is payable, then is the organization bound to pay gratuity or not?

Secondly, the organization was under some consultancy, and then after the expiry of the tender, the same was taken over by another consultancy with the same terms and conditions of the contract as per the earlier consultancy agreement. But after the expiry of the second consultancy, the third consultancy that has taken over is ready to pay gratuity only from the day they had taken over, which means the earlier years' gratuity, the first and second consultancy has not paid and gets lapsed even if there was a contract with the employees mentioning gratuity.

Can we claim it back from the third consultancy through Indian law since all the consultancy firms that had taken over are not bound by Indian law, they are foreign firms, but employees are Indians.

Thanks and regards,

JD

Please refer to the Payment of Gratuity Act and read about the eligibility for gratuity. The gratuity formula is only for calculation purposes.

Understanding the Applicability of the Payment of Gratuity Act

First of all, without knowing the nature of the business, the applicability of the Payment of Gratuity Act cannot be decided. If it is a factory, mine, or plantation, the Act will be applicable without reference to the number of workers. However, if it is a shop or commercial establishment, the Act will be applicable only if it has at least 10 workers employed. It is also important to note that once the establishment had 10 workers, but later on, the number of workers reduced to less than 10, the applicability will still be there.

Determining the Applicability for Your Situation

Now, coming to the applicability of the Act to you, it is important to determine who your employer is. It is not clear from the post the nature of "consultancy." If it involves doing something for a principal employer and continuing the work as it is for years together but under different contractors, then the issue needs to be taken up seriously. There can be an arrangement in which a set of people will be engaged by a principal employer for one year, and the same persons will continue after the expiry of the original contract for another year but under a different contractor. Please clarify what exactly is your arrangement.

Regards,
Madhu.T.K

The Payment of Gratuity Act, 1972

Applicability:

1) To every factory and other establishment in which 10 or more persons are employed.

2) Once this is applicable, even if the number of employees is later reduced to less than 10, this Act remains applicable.

Main Compliance:

1) Duty of the employer to give notice of the application of the Act to the controlling authority.

2) Payment to Gratuity:

a) Eligibility: Continuous 5 years of service

b) In case of death of an employee, payment has to be made to a minor.

c) Amount of Gratuity:

- Normal: Last drawn salary/26*15*number of years of service

- Seasonal: Last drawn salary/26*7*number of years of service

- Salary: Basic + DA

d) Maximum amount: Rs. 350,000

e) Time limit: within 30 days of the due date of the form

3) Duty of the employer to determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and to the controlling authority.

4) Duty of the employer to give notice of the opening, change, or closure of the establishment.

5) Duty of the employer to obtain nominations from the employees.

Example:

If the salary (Basic + DA) = 5,000

5000/26 (working days) x 15 (days of service) x number of years of service completed

Regards

I am surprised, Aditya has been referring to an old bare Act. The maximum amount of gratuity is not 3.5 lakhs but it is 10 lakhs since 2009. In the case of seasonal employment, it is worked out at the rate of 7 days' wages for every season and not a year. Also, refer to section 2A, which clarifies what constitutes continuous service and the significance of 240 days in a year. In the case of seasonal employment, the qualifying service is 75% of working days in each season.

Please also refer to section 1(3), which specifies to which employment the Act applies. Accordingly, it applies to every factory, mine, plantation, oil field, and other shops and commercial establishments employing 10 or more persons. That means the requirement of 10 employees is not common for all industries but for shops and commercial establishments.

Regards,
Madhu.T.K

Please see the latest amendment for your reference. After the amendment, the definition has been broadened to include any person employed to do any kind of work. Thus, the definition includes a teacher as an employee under the Act.

An employee who could not complete the fifth year for any reason but completes four years and 240 days (8 months) is considered under the law as having completed the fifth year as well and becomes eligible for gratuity.

I did not comment on the definition of an employee, and I am aware of the new definition. Regarding entitlement to gratuity on completion of 240 days in the fifth year, there is no amendment to the Act. The concept has relevance only with reference to continuous service, and that does not mean that just by putting in 240 days in the fifth year an employee would become eligible for gratuity. If the Act says "on completion of five years," it should be taken as five years from the date of joining till the date of exit.

Regards,
Madhu.T.K

Hi, Suhas,

For eligibility for gratuity, we will consider whether he completed the 5 years of service or not. There is confusion as the law does not provide any clarification if 240 days are for casual or regular employees. The definition of continuous service as per the Act is continuous service of 240 days. It is not explained how to deal with a shortfall if there is not completion of 5 years. As per the Act, 240 days means 1 year. The Madras High Court ruled out last year that 240 days are sufficient to claim gratuity. Every company is following different practices. If challenged in court, then the court's decision will be binding.

Regards

Hi, as advised by other friends, you are eligible. Just one caution: please check the letter of appointment and confirm that it was a permanent appointment.

Immediately after separation, please submit the duly filled "Form - I" to your employer for the claim of gratuity, with a copy to the DLC of your area. Legally, the payment should be made within 30 days. If not, you can claim interest for the delay.

Dear Madhu,

Sorry for the ambiguity. To clarify things, please note that one of my friends is working for a Trade Office, which is an extension of a foreign (X) country embassy. The embassy had handed over the trade office to a consultant for administrative purposes, hence the employees were taken under the consultancy firm. My friend worked for around 14 years with them under a 4-year renewal contract with the same consultancy firm. In the contract, they mentioned that gratuity is applicable, and when the employee leaves, they will get one month instead of 15 days, which is as per Indian gratuity law.

Four years ago, the same consultancy could not get the tender, hence another consultant took over under the same terms and conditions. Employees were promised verbally that there would not be any change, and hence everyone re-entered the contract without taking gratuity. Now, the embassy is planning to take over all the employees under them. However, they are not ready to pay the full one-month gratuity; they are only paying 15 days gratuity for 14 years of service to my friend.

Legal Action for Gratuity Dispute

My question is, can my friend put a legal case to get the remaining 15 days of gratuity?

Thanks and regards

If there is any written document that states your friend would be eligible for 30 days' salary for every completed year of service as gratuity, then he can claim that. On the other hand, if nothing is mentioned in the appointment order or any other communication provided later on, it will be difficult for him to establish the undertaking given by the employer. In such a scenario, he will have to comply with what the Act states.

Regards,
Madhu.T.K

Thank you. In the initial appointment contract, it is mentioned as 30 days, and in subsequent documents, it is stated as auto-renewal as per the terms of the appointment contract.

There is one more point where they (X country embassy) may have been misled, I feel, by an Indian consultant. The consultant has informed that the employee can receive a maximum of INR 10 lakh as gratuity. However, my understanding is that one can receive a certain amount, and anything exceeding 10 lakh is taxable. Please correct me if I am mistaken.

Is my friend's case strong enough for legal action?

Please advise.

Thank you.