Employee Demands Gratuity After Resignation – How Should We Handle This Situation?

One of our employees has completed 6 years with our company and has resigned and been relieved by the company. There is no gratuity policy in our company, but after receiving the relieving letter, the employee is asking for gratuity. Can anyone suggest what we should do in such a matter, as I don't have much knowledge of gratuity? Please help me out with a suitable answer.

Whether you have taken Gratuity Policy or not is not the criteria for Gratuity. Gratuity is payable when (1) The Act is applicable to you; and (2) The employee who left you has completed 5 years and more.

In the absence of Gratuity Policy, you have to absorb your liability to pay Gratuity from your company account.

Kindly read the Payment of Gratuity Act 1972 and rules first. Then you will get some basic idea. Further queries will arise, and then experts here will try to assist.

How many employees do you have?

Gratuity is eligible for employees after completing 5 years, and it will be calculated based on the last drawn salary which includes basic pay + DA multiplied by the number of years worked, then multiplied by 15/26.

Regards,
Sathya
NI Consulting Services Private Limited
81, Peters Road,
Royapettah
Chennai-600014
9841874747
9884691063

One more point...

If the company has fewer than 10 employees, gratuity does not apply.

An employee will be covered under the Act if the organization employs at least 10 persons on a single day in the preceding 12 months. Once an organization comes under the purview of the Gratuity Act, it will always remain covered even if the number of employees falls below 10.

Thank you.

Understanding Gratuity Applicability

It may be difficult to accept that your company is not covered under gratuity or that gratuity is not applicable to workmen. There are two scenarios where gratuity would not apply:

(i) If the establishment does not have the minimum number of workmen, or

(ii) If it is exempted by the appropriate Government (although this is unlikely).

Please verify if your establishment falls under either of these categories. If not, then the workmen are entitled to gratuity. Failure to comply may result in legal complications.

Thank you.

Vasu, your company is liable to pay gratuity as per the Payment of Gratuity Act, 1972. The fact is that you are liable to pay gratuity to each employee who has left your company after completing 5 years or more of service since its inception.

It is a huge non-compliance if it has not been paid till now, and you are carrying a big financial and legal risk. If you need any further help or guidance in the matter, please feel free to connect with us.

Hi,

If your establishment has an employee strength of 10 or more, the Payment of Gratuity Act is applicable to you. In this case, the employee has completed 6 years of service, and as such, you are liable to pay the gratuity. The gratuity is payable based on the last drawn salary by the employee. The calculation is as follows: Salary (basic + DA) * Number of years * 15/26.

Regards,
P S Lakshmanan
S. G. Management Services
(PAN INDIA Consultant - Labour Law Compliance, PF, ESI, P Tax, Benefit Management & POSH COMPLIANCE)

Dear learned members who interacted in this thread, with due respect to you all, I submit the following:

Gratuity Policy and Company Obligations

The company has no gratuity policy. Therefore, the question arose in the mind of the querist as to what to do in this case. This is what I understood from his post. Accordingly, I have given a very specific and correct answer to him. I stated that whether the policy is taken or not is not the criterion for gratuity, and in the absence of the policy, he has to absorb his liability to pay gratuity from his own pocket, i.e., the company's account.

Is this answer wrong? I would appreciate it if members could add value to the answer given correctly by any member rather than promoting their business by providing some answer. In case the answer is wrong, they can correct it. This is a knowledge-sharing platform, in my opinion.