Retirement Extension: Will My Gratuity Be Based on Old or Reduced Salary?

Dear all,

Can you guide me on the following question? I have recently completed my retirement age at 58 on 29.09.1958, but on my request, they have extended my service period for one more year at a 40% reduced salary.

My question is, will I be eligible for gratuity payment after the one-year extended period on my old pay scale, or will they calculate the whole gratuity on the reduced salary after the extended period? What is the status as per the law?

Thank you.

Gratuity Eligibility After Retirement

Gratuity will be applicable up to retirement age as per the full scale of the basic salary. After that, I hope you have entered into a separate contract. You will not be eligible for gratuity during the contractual period as you have completed your employment tenure as an employee at retirement. After that, you will be considered a contractual employee.

I would also like to know if there has been a break in service. Do you have a separate contractual letter? What are the terms of the letter? The outcome of the gratuity will also depend on the answers to these questions.

Warm regards,
Deena

Thank you, Deena. My extended service does not have any contractual agreement; it is a continuity of service with all statutory deductions such as PF, Professional Tax, etc. The only change is the reduced pay scale. I received a simple letter stating that my extension is granted for one more year at a gross salary reduced by 40%. Therefore, I am not able to claim retirement benefits as my service continues as a normal employee.

Gratuity Calculation Query

My question is, after one year of completion, should I receive the gratuity benefit based on my previous years at the old salary, or will they calculate the gratuity based on the period of service at the reduced salary? They have provided a gratuity provision in the balance sheet every year, and I am included in the financial audited balance sheet.

Please let me know if you have any questions or need further clarification.

Regards

Please let the forum know whether the basic salary has been reduced or if it is the same, i.e., if the PF deduction is similar or if the deduction has been reduced.

Secondly, check your PF statement as of today.

Salary Reduction and Legal Implications

Please note that the reduction of salary/wages, directly or indirectly, is illegal under the EPF and Payment of Wages Act. If a reduction has been done by your management without any break in service, without signing any contract, etc., and continued compliance under the same EPF number, they may be in trouble and liable to contribute EPF on your higher salary (without reduction). However, the employer's share towards EPS will be stopped and diverted to EPF after attaining the age of 58 years.

Gratuity Calculation

As far as the calculation of gratuity is concerned, please note that the last rate of salary (basic and DA) is considered.

Regards, P K Sharma

Understanding Gratuity Calculation After Service Extension

The gratuity law states that gratuity will be computed based on the salary last drawn. In your case, the salary last drawn is lower than the salary drawn earlier. Therefore, you will receive a lower gratuity amount.

It is important for you to speak to the company and ensure that they will provide you with gratuity at the old rate, possibly excluding the last year upon extension. You can always dispute their calculations before the commissioner (the authority under the gratuity act), but strictly following the law, you are not on strong grounds. Additionally, such disputes can be quite stressful and time-consuming.