Gratuity Dilemma: Is My Long-term Employee Eligible After Starting the Plan Now?

Hi Seniors, need your guidance for gratuity. We are a small recruitment company that just reached the figure of 10 employees this month, and the company got incorporated in 2014. So, my first employee started in May 2014 and has completed five years with the organization.

I am applying for the gratuity benefit for all employees, so it will be done this month. Queries are stated below:

1) If my first employee, who has been with me for the past five years, leaves the company in the coming month, would she be eligible for the gratuity for the last five years (which I wish to pay her) even though I will start the gratuity plan this month? I have raised the same query with LIC (Gratuity), and they told me that she would be eligible. However, other seniors believe she won't be eligible as the company has only recently started the gratuity. Please guide us as we want to be very fair with the employees regarding their benefits.

Gratuity fund will assess and collect the requisite funds from the employer. If the old employees do not fall within the ambit, the fund will handle the situation. If they become eligible from the starting date, the fund will collect the funds from the employer and disburse payment to them.

Gratuity Eligibility for Employees

It is true that your establishment is now covered, but employees who joined before the coverage will receive the benefit of the Act from their date of joining. Therefore, your employee who completes 5 years from their date of joining should be paid gratuity.

As far as LIC is concerned, they have no say in whether an employee should be paid gratuity or not. They can refuse payment, saying that you have not paid premiums in respect of them. In such a situation, it is your responsibility to pay it from your working funds. After all, LIC's fund is only to ensure that you pay it without depleting or affecting the working capital.

Dear Ranjeeta,

Applicability of the Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 (the Gratuity Act) is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments with ten or more employees. As per your post, the strength of employees has reached 10, bringing your establishment under the canopy of the Gratuity Act. All employees of the establishment, regardless of their date of joining, fall under the coverage of the act. Consequently, the establishment is obligated to pay gratuity to employees who are leaving the service and have completed five years of continuous service. LIC does not pay any sum unless there is a policy or premium paid on the policy.

Thank you.

Mr. Madhu is absolutely correct. As soon as the employee completes 5 years of continuous service from the date of joining, she becomes eligible for gratuity when she retires or resigns. The gratuity will be paid by the company or a gratuity fund like LIC if covered.

When a gratuity fund is started in LIC, the gratuity premium backlog for all employees is calculated up to date and deposited with the LIC fund. In such a case, the gratuity for all employees will be paid by LIC.