Is an Employee Eligible for Gratuity if the Company Had Fewer Than 10 Employees Initially?

Hi,

I want to know if the company was established in 2009 and had fewer than 10 employees until 2011. If an employee leaves the company in 2014, will they be eligible for gratuity or not?

I have learned that The Payment of Gratuity Act, 1972 is applicable to such establishments or classes of establishments where ten or more employees are employed.

Is this correct?

Applicability of the Gratuity Act

If the company has been registered under the Shops and Commercial Establishments Act, then the minimum number of 10 employees will be applicable. In respect of all factories, mines, plantations, and oilfields, the Act is applicable even if the number of employees is less than 10.

Now, assuming that yours is an establishment other than a factory, oilfield, mine, or plantation, if we work out the applicability of the Gratuity Act, we can take the date on which the number of employees became 10 in the year 2011 as the date on which the Act became applicable to your establishment. When it comes to the payment of gratuity, you should consider the actual service from the date of joining and not from the date of coverage. Therefore, if an employee leaves in 2014, he will be eligible for gratuity due to the following reasons:

1. He is an employee of a covered establishment.
2. He has worked with the same employer continuously for 5 years.

Regards, Madhu.T.K

Thank you very much, sir, for your reply. Just wanted to confirm one more point - Is there any provision to register under the Gratuity Act? If yes, then what is the procedure for the same.

Regards,
Toshi

Registration Under the Payment of Gratuity Act

There is no separate registration as such under the Payment of Gratuity Act. However, as per Section 4A(3) of the Act, every establishment is required to get registered with the Controlling Authority, the District Labour Officer, or the Assistant Labour Commissioner, as the case may be. This is not required for establishments that do not have any approved gratuity fund or have taken insurance for their gratuity fund.

Insurance Requirement for Gratuity Fund

Section 4A insists that every employer to whom the Payment of Gratuity Act applies should insure its gratuity fund with LIC. However, this compulsory insurance is applicable only if the state government has notified it as applicable. Until such a notification is issued, you need not take any separate registration. Once it becomes mandatory that your gratuity fund should be linked to LIC, then a Board of Trustees will be formed, and the same will be registered with the controlling authority.

Regards, Madhu.T.K

Dear Sir,

With reference to your post, "If the company has been registered under the Shops and Commercial Establishments Act, then only the minimum number of 10 employees will be applicable. In respect of all factories, mines, plantations, and oilfields, the Act is applicable even if the number of employees is less than 10."

Please tell me what documentary evidence can be placed before the court in this regard.

Sir, is what you posted an interpretation or a quotation from the act or any judgment?
Please provide the link if available.

It is not interpretation by any court but is written in the Act itself. Please go through the Act from the beginning to know the applicability of the Act.

Madhu.T.K