Am I Entitled to Gratuity After 5 Years at a Small Software Firm in India?

I have been working in a private software firm in India for 5 years. Recently, the company owner suggested that I separate from the company. Since I have completed 5 years with the company, am I eligible for gratuity?

Currently, my company has a total of 10 employees, including myself. If the company removes some employees in the future, will the company still be required to pay my gratuity? How is gratuity calculated? (My basic salary is 15,000, but there is no DA mentioned.)

Regards

Gratuity Eligibility and Calculation

As per the Payment of Gratuity Act, you are entitled to receive gratuity if you have completed 5 years of service, irrespective of the reason for leaving—whether it is resignation, death, termination, or transfer to another company.

Yes, as per the Gratuity Act and AS 15 of ICAI, the company is liable to pay gratuity. The calculation will be as follows: Last monthly basic salary / 26 X 15 X number of years of service completed. DA is applicable only if mentioned. In your case, it will be 15000 / 26 X 15 X 5. You are eligible for a gratuity amount of Rs. 43,269.00.

Regards,
Govind

Thank you for your reply. Your response is correct. However, you did not mention the applicability of POG to any establishment. The article states that the Act applies where 10 or more persons are working.

With all due respect, I would like clarification on the following quote from you:

Clarification on AS 15 of ICAI

"AS 15 of ICAI" refers to "Accounting Standard 15 of The Institute of Chartered Accountants of India." AS 15 deals with employee benefits, which include various other benefits such as Medical Care, Insurance, Profit Sharing, Leave, including sabbatical leave, and more, to the best of my knowledge.

Are you suggesting that all such benefits are mandatory since they are outlined in AS 15?

Please find the following clarity. This Act is applicable to all states (except Jammu and Kashmir) and particularly to every factory, mine, oilfield, plantation, port, and Railways Company. It is also applicable to every shop or establishment in which ten or more employees are/were employed on any day during the preceding 12 months. The Act continues to be applicable to any establishment or institution even if the number falls below 10 subsequent to its coverage. The Central Government may, by notification, extend the coverage to any establishment/institution.

In your case, even if your company's employees become fewer than 10 once the payment of gratuity is liable, they have to pay even if the number goes below 10.

Regards,
Govind

Dear Seniors,

Please clarify the following points:

1. If an employee has died before completing 5 years of service, will they be eligible for gratuity? How many days of service are required for entitlement to gratuity?

2. Will the gratuity calculation be based only on the basic salary or on the basic salary plus DA?

Thank you.

Yes, in case of death, a person is entitled to gratuity even if they have not completed 5 years of service. However, if the person is alive, a minimum of 5 years of continuous service is required. If Dearness Allowance (DA) is part of the salary, then it should be included in the calculation with the basic salary; otherwise, only the basic salary is considered.

Regards,
Govind

Thank you for your response, Govind Sir. Regarding my query, I would like to know how many days of service are required for gratuity in the event of death. For example, if an employee joined on October 1, 2014, and unfortunately passed away on November 8, 2014, would he be eligible for gratuity payment? I would appreciate it if you could provide clarification on this matter.

Please read it carefully, the response is already there.

Gratuity Payment in Case of Death

There is no minimum days of service required for the payment of gratuity in case of death. A minimum of 5 years of continuous service is required only in the case where the employee is alive and has terminated the services from either end, for whatsoever reason.

Dear Seniors, please share your views on the following query.

Why is it good to have Gratuity Insurance?

Gratuity is payable only if an employee completes a minimum of 5 years of service. However, in the case of the death of an employee, the rule of completing 5 years does not apply, meaning that Gratuity is payable. The sum payable is usually high. Ideally, the compensation for death or permanent disability should be calculated based on the average increase in basic salary per year. For this example, we will consider the last earning basic salary, which is $17,000.

- Employee's date of Birth: 01.01.1988
- Current monthly basic salary: $17,000
- Date of appointment: 01.01.2010
- Retirement age as per appointment letter: 58 years
- Current age: 25 years
- Date of the employee's death: 30.11.2012
- Total number of years of service left: 58-25 = 33
- Gratuity payable: $17,000/26 X 15 X 33 = $323,654

My question is: If an employee dies while working, will they be eligible as per the calculation mentioned above? Please consider the age factor and the calculation.

Kindly share your valuable reply.

Regards

I would like to shed some light on your situation. The Payment of Gratuity Act, 1972 states that it is applicable to any establishment in which 10 or more people are employed, and the employee has rendered a service of 5 years and is paid after termination. Both of these conditions are valid in your situation. However, the law also mentions the "Forfeiture of Gratuity," which states that the gratuity can be forfeited wholly or partially by the employer if the service is terminated.

Gratuity is calculated at the rate of 15 days' wages for every completed year (wages refer to the last drawn rate of wages). You can calculate your gratuity using this information.

I hope this helps.

Regards,
Ankita