Gratuity Dilemma: Should We Include Years from Previous Company After Transfer?

Dear Team, We had an employee whose joining date for the first company was 01 July 1999, and he was transferred to our sister concern company on 01 May 2013 (second company). However, we did not provide him with a transfer letter, and he finally left on 30 January 2021. He did not claim his gratuity from the first company during these years. Now, could you please suggest whether we need to calculate the gratuity from 1999 to 2021, or if we can disregard the gratuity from the previous company?

Thank you.

Dear Archi1993,

While doing the inter-company transfer of the employee within the group, your company should have been thoughtful of the legal consequences. This thoughtfulness includes guiding the employee on the provisions of the Payment of Gratuity Act. The second company, while taking an employee on board, could have guided the employee to claim the gratuity from the previous company. A timely settlement claim would not have required this post to be raised.

Many employees do not give due importance to their rights as employees. This could be due to trust toward the employer and also because of a lack of awareness. Nevertheless, employers cannot take undue advantage of either or both.

The second part of the last sentence of your post is a little shocking. You have written, "Now could you please suggest, do we need to calculate gratuity from 1999 to 2021, or can we leave that previous company gratuity." If you wish to wash your hands of the payment of gratuity from 1999 to 2013 to an employee who has served 22 years in the group, then it is outrageous.

If you wish, then your company may raise the internal debit note to the previous company and claim the gratuity from 1999 to 2013. However, make sure that the employee gets his dues from 1999.

If you just pay gratuity to him from 2013 to 2021 and take solace from the fulfillment of the provisions of the Payment Gratuity Act, the employee might have to run from pillar to post to get his gratuity from 1999 to 2013. However, it will send the wrong signal to all other employees. They may perceive that long service means nothing to the employer. The reputation of the company in their eyes could come down. Are you prepared to take that risk?

Thanks,

Dinesh Divekar

Thank you so much for your reply. However, I would like to bring to your attention that he has stolen a few company records and has taken his entire team along with him. Additionally, company assets such as cards, iPhones, etc., have not been returned by him. Please suggest what to do.

Dear Madam,

The fact is that no transfer order was issued containing terms of transfer. The question is, should the service put in at the former sister company be treated as continuous for the purpose of gratuity? It is possible to take the view that the entire service in both sister companies be treated as continuous. Alternatively, treat the service in the first sister company as ended from the date of transfer and also treat it as fresh employment. But in either case, since he has completed more than five years of service, he is eligible and entitled to gratuity from both sister companies.

Mixing the issue of misconduct with gratuity is unjustified and should be handled independently of each other, having regard to due process of disciplinary actions as per the law.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

Coverage of the Payment of Gratuity Act

For coverage of the Payment of Gratuity Act, establishments under one management or different units where financial integrality or interdependency is available will be treated as one. Therefore, even if you have not issued a transfer order with treatment of previous service, his service will be treated as continuous. As such, you cannot ignore the previous service.

In an arrangement where there is no transfer order available, the employee will be in a more comfortable position because, in the absence of any written communication, his service with the second company under the same management will be considered as a work arrangement. Who credits his salary is irrelevant here.

Hello all,

Employer's Right to Forfeiture

Section 4(6) of the Payment of Gratuity Act permits an employer to forfeit gratuity payable to an employee in certain circumstances. As per the said provision:

- 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.
- The gratuity payable to an employee may be wholly or partially forfeited 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 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.

Recent Supreme Court Judgment on Gratuity Payment

A very recent judgment by the Supreme Court of India states that an employer is empowered to hold back gratuity payment upon the termination of services of any employee, except on medical grounds.

Gratuity Payment Responsibility

Your query is well-posed. However, the facts have not yet been revealed; they seem to be suppressed. How can one assert that the employee has been transferred from the first company to the sister company when no such orders have been given? It is clear, as per your words, that he left your company on a certain date.

If it is an open secret known to all, it is your primary responsibility to pay his rightful gratuity. It could also be understood by anyone reading this query that you are willingly avoiding paying his gratuity. You seem to be making a fake attempt to evade your minimum responsibility of paying his gratuity.

Now, let's come straight to the point—in any case, you have to pay his gratuity without any doubts. Please proceed. No one can stop you from making the payment of his gratuity.

Thank you.

Hi, it is interesting to know only after receiving the reply from the respected Sri Diwakar sir. You revealed some theft done by the so-called employee. It clearly shows your intention to pay gratuity. I wonder, have you ever obtained an explanation from him about his lapses during his tenure in the parent (brother company) company?

All of a sudden, you want to show him as a liar to avoid paying his gratuity. You already know well all such exclusions of the Gratuity Act. You want to corner his issue to the exemptions of the duty of payment of gratuity.

At first, you wanted to know how to pay for which period... now you are saying... that you learned how to hold his gratuity under the law within the framework of the Act. Kindly note that the Supreme Court judgment also supports the payment of gratuity only... not to take advantage of some makeover stories.

See, this clearly shows you are happy for the SCI JUDGEMENT in support of your want of holding payment of gratuity... It shows Elders say "if you want to kill a dog" say it is Mad.

I don't believe your first query, and then I read your vote of thanks notes given to this platform. Ultimately, this behavior resorts to knocking on the judiciary's doors by the employee... Instead of inviting headaches... avail the noble choice to management using its intelligence... by simply closing the matter with payment of gratuity to him.

Let me interfere, I don't find anything wrong with our learned member, Gannahipe, because the law permits you to forfeit an employee's gratuity only in cases where the employee was dismissed from service for gross misconduct, and that too after following the procedures of conducting an inquiry and after giving the employee all possible opportunities to defend the charges.

In the absence of an inquiry, dismissal will be illegal, and forfeiture of gratuity will also be illegal. If he demands his gratuity involving the Labour Department, you will have to pay it. If you want to get back the asset taken by him, call him and amicably settle the issue. Who knows why he took it? Sometimes, he might have taken it in lieu of some other benefits promised to him.

Regarding business loss, you should have warned him of it periodically. That was your fault; you cannot take it as a reason for holding or refusing gratuity.

I invite comments, sir.

Concerns about employee evaluation

The only thing I felt is that the person asking has not presented the merits and demerits of the concerned employee. At first, he mentioned nothing negative about the employee. The only thing he inquired about was how to pay the gratuity and for which period. He did not mention how to deal with the situation if the employee is a defaulter.

Issues with employee benefits

My plea is that long-time employees are often denied minimum benefits under labor laws. It is a well-known fact that some hundreds of crores of GPF amounts of workers remain undrawn due to the denial of certification by factories' managements.

Ill-motivated inquiries should be discouraged.

Very true. Moreover, the manner of calculating the gratuity amount has not changed. Even now, we are considering the basic salary and sometimes, Dearness Allowance (which is not a component of salary for new generation companies), though the entire salary is considered for deciding the amount of salary for the day or days one has remained on leave without pay.

Every year, the employer conducts a performance appraisal. This has become a farce or mockery and is mainly carried out to decide on the salary increase. In most cases, a common letter like, "based on your performance during the last year, the management is 'pleased' to increase your 'salary'....."

Here two things require attention.

Performance

An employee rated as performing may become underperforming in a few months when a disagreement occurs between the employee and the management. When you ask him to go, you cannot say that he is asked to go due to his performance unless you have given him an indication of his poor performance and given him time to meet the new expectations you have about him.

Salary

Here the salary will include everything, i.e., basic, DA, HRA, and whatever is mentioned in the appointment order or the salary revision letter. You cannot have a separate salary for the calculation of gratuity. Salary for the purpose of payment of gratuity shall include all components of salary as per the contract of employment. Certainly, you can exclude those allowances that are outside the salary.

In short, gratuity is a right of an employee, and termination of service for any reason other than moral turpitude and for the recovery of the amount of loss caused to the company by him due to his riotous behavior is not grounds for forfeiting or denying it.

Please follow the link http://madhu-t-k.blogspot.com/2019/1...-gratuity.html

In the cited case, there seems to be no reference to the Payment of Gratuity Act, 1972. The case is different, and in my opinion, it refers to the Gratuity Regulations, 1969, the statutory provisions of which are more liberal and favorable (to the employer) than the former, i.e., the Payment of Gratuity Act. Moreover, in the Gratuity Regulations, the definition of an employee is different, and it does not include 'gold color' employees.

Again, in this case, proceedings under the Public Premises (Eviction of Unauthorized Occupants) Act, 1971, have also been initiated. Therefore, I doubt whether this Supreme Court verdict will help the employer in the present case under our discussion in which the concerned employee is an employee under the Payment of Gratuity Act and no proceedings had been initiated against him before his leaving the company.

Very true, but it was also reported against the employee that he is in possession of company property, and he has already left the company.

Supreme Court Judgment on Withholding or Forfeiture of Gratuity Payment

Thus, the Supreme Court judgment on withholding or forfeiture of gratuity payment in case of recovery of dues (dues can be outstanding dues or the equivalent cash value of any company property) holds good in the current case.

Kindly correct me if I am wrong.

Gratuity Dispute and Termination Consequences

True, but the amount due should be quantifiable, and that depends on the employer proving that he has sustained the specified amount of loss (sec 4(6)(a)) caused to the company. What is very important is his termination for causing loss to the company. If an employee is in possession of any asset of the company, the latter can recover it by other means, but forfeiting gratuity cannot be justifiable.

Resolution of Gratuity Disputes

Since there is a dispute regarding the payment of gratuity, I think it is advised to take it to the Appropriate Authority under the Payment of Gratuity Act, the District Labour Officer, or Deputy Commissioner, as the case may be, and deposit the amount with him. I am not sure if it will be easy for the employer to solve the issue in such cases, but the employer can try by involving the Officer.