Gratuity Eligibility Dilemma: Does Overseas Service Count Towards Indian Gratuity?

An employee in our company worked in Hong Kong roles for 10 years before finding a suitable position in India and getting transferred to roles in India. After a 3-year span, if he resigns, how do we calculate service eligibility for gratuity?

Actually, as he has worked only 3 years in India, he should not receive gratuity. However, there is contention from HQ that he has served in the company for 13 years, hence we have to pay him gratuity.

Eligibility for Gratuity as per the India Gratuity Act

How do you treat this case? Is he eligible for gratuity as per the India Gratuity Act?

Also, to note, he was directly recruited by Hong Kong from another company and worked there all the years before moving to India.

Gratuity Eligibility for Hong Kong and India

Hong Kong has its own gratuity act. He should have been paid gratuity under that act.

Under Indian law, he should get gratuity only for the period he has worked in the Indian company. However, if the Head Office is willing to pay more, then there shouldn't be a problem. The law does not prevent you from paying higher than required under the law.

In Hong Kong, there is no gratuity applicable to employees. Maybe our company does not offer it.

So, it still holds true that in India, gratuity should be calculated based on the service period in India alone.

Does it raise any legal or compliance issues if he is paid with 13 years of gratuity in India, while his service in the Indian legal entity is only 3 years?

Regards, Raji

Gratuity Payment for Employees with International Service

If your establishment is situated in India and your employee was serving in Hong Kong, upon termination of employment for any reason, you should pay gratuity for the entire length of service, which includes both his Hong Kong and Indian service. This is because an Indian establishment is covered by the Payment of Gratuity Act, which does not specify where the employee works. The gratuity amount will be calculated based on the salary he receives at the time of termination of employment.

If the employee has directly joined in Hong Kong under their payroll, then before leaving Hong Kong, he has to settle his full and final settlement before joining or transferring to India.

Transfer Scenarios

If it is different and he had initially joined in India and then transferred to Hong Kong, then the terms of transfer may fall into two categories. In one scenario, he resigns from his Indian job, settles the full and final dues, and joins the job in Hong Kong under their payroll and service conditions.

In the other case, he might be deployed as an expatriate where the employee's basic service conditions remain the same as in India, including salary and benefits. The employee may receive expat allowances for maintenance, possibly including free accommodation, car facilities, etc. In the latter case, it represents a continuity of service. These conditions vary from organization to organization.

Gratuity Eligibility

The legal eligibility for gratuity will depend on the terms and conditions of the employment contract. Alternatively, if the organization chooses, they may pay gratuity for 13 years.

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Nothing prevents the company from giving higher benefits than required by law; however, the gratuity given will probably be taxable as it is over and above what is required under the law.