Gratuity Dilemma: How to Handle Employee Claims with Gaps in Service Due to COVID-19?

Hi all, I would like more information about the Gratuity Act. One of our employees has threatened to file a lawsuit against me if I don't provide a gratuity. He has worked for exactly five years, but there was a gap during the coronavirus period. When he first joined the firm, he was a trainee, and after two years, he was on the payroll.

Since I am a new employee, I issued a five-year relieving letter without consulting management. I am being reprimanded by management without any consideration. Does he need to be given a gratuity? How do I resolve this dilemma? My error has caused the company to face this issue as well. We have not provided any ESI or PF for him, and his employee code remains as a trainee only.

Hi, If the employee continued for 5 years, then he/she is eligible for gratuity irrespective of being a trainee/on the rolls. Whether ESI/PF is deducted or not has nothing to do with gratuity.

Referring to the gap period in between, during the corona period as mentioned in your post, what is it - did the employee leave without information and then join back again, or are you referring to the lockdown period?

I'm referring to the lockdown period, and we have not deducted any gratuity amount from his salary. I have completed my formalities by providing a relieving letter. Is it my fault to provide the relieving letter? Now, I'm being blamed for issuing the relieving letter.

Hi, If the employee completes the proper notice period as per the terms and conditions of employment, then a relieving letter should be given. It is not your fault. Even if the relieving letter was not provided, the employee has the option of appealing before the Assistant Commissioner of Labour for Gratuity.

Gratuity Payment

Gratuity is to be paid by the employer, which is statutory, and the same should not be deducted from the salary of the employee.

Since he voluntarily resigned, the management is hesitant to provide gratuity. How should I handle the situation? The employee has threatened to bring a lawsuit against the company in my name. Is there any other way to refuse gratuity? Kindly help me find a solution to this.

Understanding the Payment of Gratuity Act

The Payment of Gratuity Act states that if an employee has been in continuous "service" for not less than five years, the employer should pay gratuity. The term used is 'service' and not 'employed.' An employee on leave is still considered in service even if not actively employed. During the COVID-19 period, even if the employee has not worked, they should be considered in service. You did not assign a new Employee Number when the training period ended and the employee was confirmed, which confirms continuous service. Additionally, the period other than the apprenticeship period (training as per the Apprentice Act 1961) should be deemed as the period of service for entitlement and gratuity calculation.

Conditions for Interrupted Service

To be deemed as interrupted service, there should be specific communication that the period of absence will be considered a service break. If no warning letters or disciplinary actions have been taken, the service would be continuous, making the employee eligible for gratuity. However, if the employee falls short of 240 days (including paid weekly offs, holidays, and leaves) in a 12-month period, that year shall be excluded for gratuity calculation. Furthermore, if your establishment operates for less than six days a week, for example, five days, then it is 190 days for every 12 months.

If the above conditions are met, you may proceed with settling the gratuity.

Hi, I would suggest that you release the gratuity as per the entitlement. You may educate your management that the issuance of a relieving letter has nothing to do with gratuity. Even if a relieving/experience certificate was not provided, the employee has the right to appeal for gratuity. Also, for gratuity, there is no need to deduct money from the employee's salary.

Thank you.

Hi Pavi Jana,

I'm referring to the lockdown period, and we have not deducted any gratuity amount from his salary. I have done my formalities by giving the relieving letter. Is it my fault to provide the relieving letter? Now, I'm blamed for providing the relieving letter.

What? Deducting 'gratuity' from salary? Really? If it's a fact, then it's illegal and wrong. It's necessary for your establishment to pay gratuity as per the act.