Gratuity Dilemma: Can Employees Claim More Than the Statutory Limit Based on Company Policy?

Gratuity More Favorable than Statutory Rights

Can an employee legally claim gratuity more than the statutory admissibility as per the Payment of Gratuity Act, citing the company’s policy which allows the calculation of gratuity at 20 days for each completed year of service for eligible employees? Can management not argue that it is at the discretion of the management to pay higher gratuity?

Please suggest a response with any relevant case law.

Thanks and regards

Hi, Anything over and above (instead of 15 days @ 20 days) the statutory limit is at the discretion of the employer.

Gratuity Payment Beyond Statutory Limit

Even gratuity can be paid more than 20 lakhs. While the maximum limit for gratuity is 20 lakhs as per the current rules, an employer can choose to pay a higher amount as gratuity if they wish to do so. However, the excess amount will not be tax-exempt.

An employee cannot claim anything over and above the statutory limit by making an appeal before the controlling authority as per the Act since the employer hasn't denied the statutory gratuity.

Legal Recourse for Excess Gratuity

However, if the excess gratuity is committed by the employer as per the terms and conditions of the employment contract in writing, then the employee can seek justice through a civil court for breach of contract terms.

Civil Court Jurisdiction in Gratuity Matters

Is the Civil Court of any jurisdiction in the gratuity matter as mentioned in the last paragraph?

When your company policy states that gratuity is admissible at 20 days for each completed year, why do you want to deviate from the policy?

Please refer to his Offer of Appointment. If it is mentioned that gratuity payment is as per statutory norms, then you can disburse gratuity payment based on statutory norms, which is at 15 days for each completed year. This is subject to his completion of 5 years or more of "continuous service."

Settlement Agreements on Gratuity Calculation

If there exists a settlement between the employer and the workers that gratuity will be calculated on the basis of 20 days for every completed year of service, it will be legally enforceable. There are many such settlements.

In the organization where I was working, there is a similar arrangement wherein for the service beyond 20 years, the gratuity will be calculated on the basis of 30 days for every year exceeding 20 years. If you want to change a clause, certainly, you should have a settlement with the workers.

Gratuity and Company Policies

Merely because the company has a voluntary scheme of gratuity, it does not mean that it is not mandatory, and you can tinker with it at will. Once you have a well-publicized scheme, it becomes a part of the service conditions and it cannot be annulled or modified except by following the due process of law. In the case of workmen covered under the ID Act 1947, withdrawal of customary benefits becomes an unfair labor practice. Even in the case of non-workmen, it amounts to a breach of reasonable expectation, and there is an actionable claim against it.

So, if you are going to limit the statutory liability and eschew the extra benefit, follow the procedure.