Gratuity Eligibility After 6 Years: Is My Company’s Policy Different?

Dear All,

I joined an organization on 1st January 2011, which has more than 600 employees. Every month, the organization provides a salary slip, showing an amount of Rs. 500 in gratuity. If I were to leave the organization after 6 years, would I be eligible to receive the gratuity?

Regards,
Rajesh

Dear All,

I joined an organization on January 1, 2011, which has more than 600 employees. Every month, the organization provides a salary slip with Rs. 500 shown as gratuity. If I were to leave the organization after 6 years, would I still be eligible for the gratuity?

Regards,
Rajesh

Since the employees of your organization are covered under the Payment of Gratuity Act and the gratuity amount is also reflected in their monthly salary slips, which is commendable. According to the provisions of the aforementioned act, any individual who leaves the organization after more than 5 years of service is entitled to gratuity at the rate of 15 days' wages for each completed year of service.

The amount of Rs 500 shown in the salary slip is likely the sum allocated by the organization for budgetary purposes. Regarding the query about someone leaving the job after 6 years of service, I believe they are eligible for gratuity. You would receive an amount equivalent to 15 days' wages multiplied by the number of years of service, in this case, 6. I suggest verifying this information with your HR department for confirmation.

Kind Regards

Dear Sir,

Thank you for your prompt reply.

Could you assist me with the gratuity calculation?

Regards,
Rajesh

Dear Rajesh, Gratuity is a one-time terminal benefit that requires no periodic monetary contribution from the employee. Gross wages or salary are the total of the periodic monetary consideration payable by the employer to the employee for the services rendered to the organization. Employer's contributions to Provident Fund, ESIC, Gratuity Fund, Medical Insurance, etc., are called Fringe Benefits. These fringe benefits are extra compensation in addition to direct wages or salary periodically payable to the employee. However, to ascertain the overall cost incurred concerning individual employees, all sums payable are clubbed together, which is called C.T.C. Statutory gratuity under the Payment of Gratuity Act, 1972, is payable only upon the termination of employment to the employee, computed based on their length of qualifying service and last-drawn wages or salary.

Regarding your statement that Rs. 500 is being shown in the monthly salary slip as gratuity, it is somewhat confusing. Is it shown on the deduction side or the gross side of the salary slip? If it is on the gross side, it forms part of the essential component of your direct wages/salary, which is a practice unheard of thus far; if it is on the deduction side, it is an illegal deduction. I seek your feedback.

Sincerely

Dear Rajesh,

I have already told you the formula to calculate Gratuity. In case you want me to compute that, then you may pass on details of the monthly salary, particularly Basic & DA applicable.

Dear Umakanthan.M Sir, In the salary slip, Rs. 500 is showing in the monthly slip, and it is reflected on the gross side.

Query about Resignation and Full and Final Settlement

I have another query: One of my friends had worked in an organization for almost 5 years and 9 months. One day, he submitted his resignation, mentioning a one-month notice period. However, the Head of the department accepted the resignation and asked him to leave the office on the same day without completing the notice period. During the exit formalities, he inquired with the HR department about his pending dues such as paid leave, gratuity, salary, experience letter, etc. The HR department informed him that the Full and Final settlement (F&F) would be cleared within 30 days from the exit date, and all relevant letters would be provided within 60 days from the exit date.

After 30 days, my friend started following up for the F&F through mail and calls, but the HR department is not responding adequately and consistently denying the requests. It has been almost 5 months since the exit formalities, but the HR Department has not cleared all dues or provided the relevant letters. Sir, can you guide me on what steps I can take in this situation? My friend resides in Ahmedabad, Gujarat. If possible, may I call you to discuss this matter clearly?

Thanking You.

Regards, Rajesh

Dear Sir,

Monthly salary: $32,000
Basic: $10,000
Total working years: 5 years 9 months

Please calculate the amount of gratuity.

Regards,
Rajesh

Gratuity Calculation

10,000 * 6 * 15 / 26

5 years 9 months - 6 years

26 - number of working days in a month

Dear Rajesh, From your reply, I understand that although the amount of gratuity was included in the gross salary, no deduction was made in this regard, implying that the employee's contribution was collected by the management.

Gratuity Payment Upon Termination

Normally, gratuity is payable to an employee upon termination of his employment. According to Sec. 7(3) of the PG Act, 1972, the employer must pay the gratuity amount within 30 days from the date it becomes due. Sub-section (3-A) requires the imposition of interest for any period of default. Therefore, if your friend's gratuity is not paid within 30 days from the date of his departure upon acceptance of his resignation by the management waiving the notice period, they must pay him simple interest at 10% p.a for the entire delay period.

Gratuity Calculation Example

Considering his last-drawn basic salary of Rs. 10,000 and a qualifying service of 6 years (rounded up), the gratuity payable would amount to Rs. 34,615.00.

Filing a Claim for Gratuity

If the full gratuity amount is not paid, or if an incorrect calculation is made without including interest for the delay period, your friend can file a claim before the Controlling Authority for the area where his establishment is located. His current place of residence is irrelevant. In such a scenario, advise your friend to seek the assistance of a legal advocate.

Thank you.

You will receive Rs. 34,615 as a one-time payment, as per the provided details. Since the employee has worked for more than 6 months, gratuity becomes payable for the entire year, up to the 6th year.

Dear Sir,

Is gratuity payment calculated based on the net monthly take-home salary or only the Basic and HRA?

Thank you.