How to Calculate Gratuity for an Absent Employee with Outstanding Loan Issues?

We seek your clarification regarding the gratuity payable to one of our employees, who has been absent from duty since 05.11.2016 (last year).

Employee Background

The said employee has been working in our company since 02.11.2007 as an Assistant Engineer in the Machine Shop department. He has not been coming to the office from 05.11.2016 to date. We had issued him a notice for absenteeism.

The employee has taken a personal loan from the bank. The company had undertaken to credit his salary every month until the closure of the loan and seek a "NOC" from the bank before disbursing terminal benefits arising out of resignation, termination, retirement, etc. The terminal benefits payable to the employee were less than the loan outstanding. Hence, we could not get a NOC from the bank, and the said employee could not be terminated. The EMI for the loan availed by the employee is being deducted from the salary of the guarantor, who is also our employee.

Salary and Gratuity Details

The Basic + VDA of the said employee was Rs. 10,532/- as of November 2016. His last working day was 05.11.2016. Due to the non-availability of a NOC from the bank, he is still on the rolls with unauthorized leave (loss of pay). The joining date is 02.11.2007, the last working date was 05.11.2016, and the last Basic + VDA drawn was Rs. 10,532/-. The relieving date from muster rolls will be on 30.11.17.

Kindly advise what should be the gratuity amount payable to the employee. Should we apply the minimum wages as applicable under the Electronic Industry for a skilled employee, i.e., Rs. 12,065.60, or should we pay the last Basic + VDA paid, i.e., Rs. 10,532/-? Please inform me of the calculation of gratuity.

Regards,
Hari

Question of Gratuity Payment

How does the question of payment of gratuity to the employee arise when his services have not yet been terminated, either voluntarily through resignation or by the employer through dismissal for misconduct such as unauthorized absence or abandonment of service?

Moreover, pending dues of a personal loan obtained by the employee from an external agency cannot be a valid reason to refrain from taking disciplinary action for any misconduct committed by the employee, as long as the employer is not a guarantor for the loan but has only agreed to deduct the dues periodically and remit them.

Therefore, it is advisable to initiate disciplinary action against the employee promptly for his unauthorized absence since 05-11-2016. This should involve requesting an explanation from him, formulating charges, conducting an internal investigation, issuing a second show-cause notice, and ultimately issuing a formal dismissal order. If there is no response from the employee at any stage or if he fails to participate in the investigation, the final decision can be made based on the findings of the one-sided inquiry. It is crucial to ensure that the notices are served to the employee, either through publication in the local newspaper in case of no response or through regular means of service.

Unauthorized absence should not automatically disqualify the employee from receiving gratuity for that period unless the employer explicitly declares it as a break in service. Furthermore, the period of absence starting from 05-11-2016 cannot be considered for calculating the gratuity since the employee has been consistently absent.

Given that the total of basic pay and dearness allowance under the Minimum Wages Act exceeds the wages last paid by your industry, only the minimum wage should be considered.

There is no requirement to obtain a No Objection Certificate (NOC) from any external creditor of the employee for the settlement of his statutory terminal benefits.

Kind regards

Dear Hari Shenoy, you have two issues:

Payment of Terminal Benefits
Please go through Section 4(1) of the Payment of Gratuity Act 1972 - Payment of gratuity. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years:
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease.

(6) Notwithstanding anything contained in sub-section (1):
(a) the gratuity of an employee, whose services have been terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.
(b) the gratuity payable to an employee may be wholly or partially forfeited:
(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
(ii) if the services of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

In the instant case, the employee has absconded, and the management has taken steps for commencing disciplinary action under service rules as applicable. Therefore, the status of the employee is "on unauthorized absence." The question of termination comes only after the final decision of the management. Therefore, it is too early to discuss the issue of gratuity.

Issue Related to Obtaining NOC from the Bank
Management has agreed to recover the loan in EMI out of his salary and will disburse the terminal benefits only after producing NOC from the bank. This is only an understanding and a matter of good gesture of the management in helping its employees. This condition may play a role when the said employee resigns, is terminated, or retires, and the management settles the terminal benefits (as per standing instructions or service rules as applicable) without insisting on NOC from the bank. It may also be noted that under Sec 14 of the Act (amended), gratuity cannot be attached.

Therefore, for taking disciplinary action against the absconded employee, the question of "NOC" from the bank doesn't arise, and it has no role to play in the disciplinary proceedings.

Reason for Keeping Employee on Rolls

What is the reason to keep him on the rolls till date? Is your company equipped with certified standing orders (Workmen) or HR policies on absenteeism, rules, and regulations such as in-house rules for discipline and the course of action to be taken by the employer? Generally, any organization will wait for an absence of 10 or 15 days. Thereafter, it will start taking action as per the current rules and regulations in force.

Actions to Consider

To be on the safer side, you can publish an advertisement in the local paper of your region. Initiating legal or disciplinary action proceedings at this point in time will be complicated, and ultimately, you may have to close the issue ex-parte. In case you have details of his family members, please contact them to find out what has happened to him before making a final decision and preparing his Full and Final settlement with respect to the service he rendered until 5th November 2016.

Finally, Gratuity can be forfeited as per the provisions of the Act, as rightly mentioned above.

Regards,
V. Murali