Can We Delay Gratuity Payment for an Employee Extending Service After Retirement?

Dear All,

One of our employees will be retiring on 10/01/2020. The company has decided to extend his services for the next two years, from 11/01/2020 to 10/01/2022, by providing him with an extension letter. He has served with us for the past seven years.

Now, my query is whether he will be eligible for gratuity for nine years (on 10/01/2022) if we do not pay him on the day of retirement, or if we can give him gratuity for seven years on 10/01/2022.

I would appreciate your prompt advice.

Thank you.

Dear [Employee],

You have two options for that employee. First, you must initiate retirement proceedings with effect from [date]. Following this, you must pay all legal compliance dues for the past seven years. Subsequently, you can rehire the employee on a retainer basis. The only deduction required will be for Income Tax.

The second option is to continue with all the terms and conditions as per the original appointment letter. However, in this scenario, the employee will only undergo PF deductions and will not be eligible for the pension contributions deposited in ECR.

Please review these options and let us know your decision.

Thank you.

Best regards

Dear Vyas,

Extension of service beyond superannuation

Extension of service of an employee beyond the age of superannuation means continuity of the contract of employment. Therefore, the extended period may also be taken into account for the calculation of terminal benefits like gratuity. If you permit him to retire on the exact date of superannuation, you have to pay him all the terminal benefits forthwith.

Post-retirement engagement

The engagement of the services of the employee post-retirement is something different from the extension of service. Hiring the services of the superannuated employee later on a retainership basis depends upon the position he held in the organization before. If he was in some managerial position, he can be taken as a management consultant on a retainership basis. Had he been in the lower rung like an operator or driver, you can take him on a fixed contract basis.

Going by the details provided by Vyas, it's well construed as 'continuous service' as there is NO break-in-service intended by the management. Therefore, you should consider payment of gratuity only when he may be stopped from service. However, if the management decides to 'break' the continuity of service and re-employ him on whatsoever terms could be, then you should pay the gratuity up to the 'break'. There are difficulties.

Dear Sir,

Greetings,

As his services have been extended for the next two years, i.e., 11/01/2020 to 10/01/2022, and he has served for the last seven years, he will be eligible for gratuity for nine years (on 10/01/2022) if his extension is "On roll."

Thanks and regards.