Understanding Gratuity Eligibility During Transition to Private Limited Company

Dear HR,

I'm working in a Software (Web & app development) Company since June 2011, located in Vellore District, Tamil Nadu, India. I have completed 4.7 years here. Recently, our office's strength has increased from 8-10 employees to 22-25. Our company became a Private Limited company only 8 months ago, in June 2014.

Currently, our company is in the process of registering for Provident Fund (PF) and Employee State Insurance (ESI) as there were no deductions made in our salaries earlier due to non-eligibility.

If I were to be relieved from the company in the future, would I be eligible for Gratuity? If so, please advise me on the procedures for requesting and applying for it.

Thank you.

Yes, you are eligible to receive gratuity. It is in no way related to EPF or ESIC registration. Once your company's employee strength increases to more than 10, everyone in the company who completes 5 years of service becomes eligible for gratuity.

To claim your gratuity, you need to fill out Form 1 (Application for Gratuity by an Employee) and submit it to your HR department at the time of retirement or resignation. They will process the payment within one month.

The gratuity amount you will receive is calculated as the current basic salary divided by 26, multiplied by 15, and then multiplied by the number of years completed.

You worked since 2014 for a proprietorship company. For 8 months, you have been working in a private company. So, it depends on how you left and joined the current organization. Did you get fresh appointment letters? Did you resign and join, or was it just that you received a new salary from the new company starting from a certain month? It will ultimately depend on how the private limited company was formed.

Hi Saswata Banerjee,

No, I didn't resign or get relieved from that company. I have been working in the same company since June 2011. The salary was given without any signatures on the voucher or as a cheque. They provided the salary simply as a cash payment until October 2012. From November 2012 to the present, it has been transferred to the employees' bank accounts through net banking. The same organization became a private limited company in June 2014.

Thank you.

It seems to be a doubtful case. The payments made on cash vouchers, whether the name and other particulars were borne in the muster rolls of the firm, are again suspicious. Moreover, the firm and company both have their own identities and cannot be treated as a single establishment. It depends on the documentary evidence.

P. K. Sharma

The final answer is also decided by whether the company was formed independently or by acquiring the proprietorship business. You need to have a look at the Memorandum of Association (MOA). If the first object clause is to take over the business of the old proprietorship, then you automatically qualify for a graduate as the business has not changed.

If not, then you can always present evidence before the commissioner that you were working for the same firm and that conversion to a private limited company is a sham and needs to be pierced. However, that is a long-drawn exercise that would involve lawyers and your access to previous payroll data.

So, you need to evaluate whether it is worth the effort and further whether you will risk your future career by initiating a complaint against your current employer. Remember that many companies require a background check, and definitely, your company will give very negative feedback against you. If this was your last job at retirement age, then at least you don't have to worry about your future employment.