Understanding Gratuity Eligibility: Do Employees Need 240 Working Days Every Year?

I have two queries regarding the Gratuity Act.

Eligibility for Gratuity

1. As per the Payment of Gratuity Act, 1972, an employee becomes eligible for gratuity when they have completed five continuous years of service. My question is whether the employee must complete 240 working days in each year, or if it is only in the fifth year that they need to continue working for 240 days to be eligible.

Counting Working Days

2. Are paid leaves, Sundays (in the case of a 6-day workweek), Saturdays, Sundays (in the case of a 5-day workweek), and National Holidays also counted as working days for the calculation of the required 240 working days?

Thanks & Regards

As per the Act, it states 4 years of continuous service and 240 days of working in the 5th year. In the Act, it is clearly mentioned about continuous service: if an employee has been on leave with full wages, such leave should be taken into consideration.

Regarding the 240 days, if you are working 5 days a week, the calculation is as follows: 365 days in a year minus 52 weekly offs (Saturday & Sunday) minus 11 national holidays/festival holidays equals 302 total working days in that year. Therefore, the person has to work for 240 days in the 5th year, which includes leave and national/festival holidays declared by the organization.

In the Gratuity Act 1972, continuous service has conditions such as accidents while on duty and maternity leave for females to be considered as continuous service.

Clarification on Gratuity Eligibility

As per the Act, it is not 4 years and 240 days in the fifth year, but it is the completion of 5 years of continuous service.

Now, coming to continuous service, 240 days of working is considered as continuous service and that is required in each year, not just in the fifth year. The year is taken as 12 months preceding the day of exit. That means if you leave in August, your service backlogs will be counted. For deciding whether an employee had worked for 240 days, all paid holidays, weekly off days, leave days, and days on which he had been laid off will be counted as days worked. For persons in establishments that work for less than 6 days in a week, the mandatory 240 days will become 190 days. This is applicable for those who are working below the ground (of mine).

There have been a lot of discussions and disputes regarding the gratuity eligibility of employees who leave organizations after working for four years and 240 days in the fifth year. Though some judgments say that completion of 5 years is mandatory for eligibility for gratuity, some other judgments, like that of Mettur Beardsell Ltd vs Regional Labour Commissioner (1998 LLR 1072) and a very recent judgment by the Kerala High Court in Sreeja Vs Regional Joint Labour Commissioner (2015 LLR 826), have taken the stand that working for 240 days over a period of 12 months would constitute continuous service for that period. Therefore, even if an employee has not completed 5 years of service but has worked for 4 years (with each year having 240 days) and 240 days in the fifth year, they are entitled to gratuity.

Regards,
Madhu.T.K

Dear Madhu ji,

Thanks for your inputs.

I am considering 12 months from the date of joining and not from the date of exit. I do not know what is correct.

I would like to add here. This may be applied in the state of Tamil Nadu and now in Kerala. Rest, one has to make a similar case law if the employer is not agreeing. Hope you will agree with me.

Understanding Gratuity Eligibility and Court Rulings

Two ways can be followed. The only thing is that it is not the calendar year that should be followed but 12 months backward from the date of exit or 12 months from the date of joining.

There is nothing wrong with considering a state ruling from another. Similarly, a High Court ruling can be considered in another state as well. In the case of payment of Gratuity, since there was no amendment that took place in the Act considering these judgments, other states may argue that the ruling is not binding on them. There can be different interpretations of it by other judges. Even an employer can interpret the Act in the same way in which the Tamil Nadu or Kerala High Court has interpreted.

Regards,
Madhu.T.K