Can My Former Employer Legally Demand Return of Overpaid Gratuity After Final Settlement?

I have received my Resignation Acceptance, Full and Final Statement (no dues), and Experience Letter from my previous employer in India. I was relieved from my services, and now, after 2 months, I received an email from the Payroll team stating that they have paid me excess gratuity due to a computation error. They are asking me to return the money as soon as possible, and in case I do not comply, they will take legal action. The amount is approximately 50k (Indian Rupees). Do they really have the right to recover this money that they paid due to their system problem? Can they threaten me like this? I worked with the company for 10 years, 5 months, and 21 days, and they paid for 11 years in their calculations.

Hi, First, please check with them what the error was. If a miscalculation occurred and they overpaid you, you are obligated to return the excess money to your ex-employer. However, in the case of an incorrect calculation of Gratuity, you can contest it.

Thank you.

According to my opinion, the company cannot take legal action for the recovery of dues, which may result from their own miscalculation. The gratuity amount paid to you for the services rendered by you with your company in India was not the result of any fraud or malpractice. At the time of receiving the money, you were unaware that the amount exceeded your entitlement.

Judgment by the Gujarat High Court
In this connection, I am attaching a judgment by the Gujarat High Court regarding a similar case to yours.

As per the Payment of Gratuity Act (PGA) 1972, you are entitled to gratuity limited to 10 years of continuous service as you are falling short of the 11th year of service by about 11 days. So, the employer seeking a return of the excess paid on this account is justified unless there is a specific provision to the contrary in the Gratuity Rules of your establishment.

There is no provision in the Act regarding the recovery of an excess amount paid as gratuity. The use of any legal means to recover the amount is time-consuming and uncertain. However, the question remains whether it is morally and ethically correct to retain a wrongly paid amount.

Gratuity Payment

While calculating gratuity entitlement, please note the number of months in the last year of employment. Anything above 6 months is rounded up to the next number, while anything below 6 months is rounded down to the previous lower number. In your case, you fall short of 6 months by a few days; hence, a 10-year period was used for working out your entitlement. I would advise you to please return the excess amount. By not taking advantage of an inadvertent error on the part of the ex-company, you will be setting the highest standards.

From your message, it seems you have not completed either 11 full years or 10 years and more than 6 months to compute and consider it as 11 years. If a person worked in excess of 6 months, it is to be considered as one year and added to the full years of service.

Please be gracious to return the money without any demur. However, seek the old calculations if you have already signed an agreement between the company, gratuity trustees, and employee. Then, get a proper letter addressed to you informing you of the error in the calculation of a year, which, by virtue of being less than 6 months, should not be added but was erroneously included in the calculation as a year.

By acknowledging the letter to the company, demand from them the actual calculation that is entitled to you and your revised rectification of error and revised Final Settlement of Gratuity entitled to you Rs.0000000.00, less already paid on the date by cheque/transfer or other mode with the date of payment Rs.00000000000, the amount due or paid in excess. Then make a written demand for the refund of the excess amount to the company.

You need to check that all the calculations, except the number of years, are in order, and there is no circumventing the rules or attempts to make you pay back differently.

Official proof of the refund of the amount is absolutely necessary to be obtained by the gratuity treasurer. Normally, gratuity will be paid from the Gratuity Fund account and not from the company's official account. Therefore, care should be taken to get the Gratuity Fund account to confirm the return and refund of excess by you.

Sometimes when an employee resigns, they have to settle the gratuity from the Gratuity Fund. However, if the year has not ended to provide and transfer funds, and all the funds are invested as per criteria, there may be no liquidity in the Gratuity Fund Bank Account. Then either the company transfers the equal amount to the Fund account, thereby the Gratuity Fund settles the account directly, or the Gratuity Fund is worked out by the Gratuity Fund Trustees, and under their letterhead, they will work out the amount due to the employee. Then below the settlement of the amount due to the employee, the method by the company's bank account and full settlement is mentioned.

Every year, actuarial valuation is done by providing a long list of employees in the company. The details such as Date of Joining, present Salary/Wages, and Date of Birth of the Employee are provided to the Actuarial Valuer at the year-end. He prepares the list, and the provision required for each employee is mentioned, along with the total liability of the company as of that year-end.

Then the company deducts the amount in the Fund after the payout to the employees. Reconciliation is done as to Opening Balance, adding the amount received from the company. Total Rs. 000000 deduct amount settled to the employee by payment. The net fund amount is further reconciled by mentioning all the invested amount and accrued interest, interest received, and current bank balance. Then this is compared again with the Actuarial Valuer report. The shortfall is provided by the company and taken into account in the P/L & B/S.

Please do accordingly. Because there is always E.& O.E in everything, so it's better to settle the liability.

The employee should return any extra amount received due to wrong calculations or mistakes. Both the employee and employer can pursue legal action for any shortfall or excess payment by either party. The employer is entitled to take legal action to recover any overpaid funds resulting from system errors.

Morally, if you have received extra money by mistake, one should return it.