Can We Withhold Gratuity if an Employee Skips Handover and Asset Return?

Dear Fraternity Members,

One of our senior team members has completed his notice period but has not finished the knowledge transfer and asset handover. Can we hold his gratuity unless he completes the above formalities, or could it cause legal hassles?

Thanks in advance.

No, you cannot hold gratuity. You only have the option to hold his service certificate and relieving letter. Regarding assets, you can deduct the value of the asset as per the accounts books from his full and final settlement, provided you have proof of his taking possession of the asset.

Regards,
MVK

Gratuity Act Provisions

The provisions of the Gratuity Act state that gratuity can be withheld in cases of damages, loss, or destruction of property belonging to the employer. This includes situations where termination of service is due to riotous or disorderly conduct, or involvement in a criminal case with moral turpitude, as held by the Court.

Settlement of Gratuity

On the ground, you can settle part of the gratuity by withholding an amount equal to the cost of assets held by the employee. Furthermore, gratuity is typically paid upon successful exit, but in this case, the employee has not completed the exit formalities. Therefore, the employee cannot legally claim their gratuity, and there are no violations on the part of the employer. In these circumstances, the employer can issue a simple letter stating that the Full and Final settlement can only be done upon completion of the exit rules.

@prabhar, I think the fact that he has completed the notice period and then left is an "exit" under the law. Failure to complete the handover is no grounds for withholding gratuity. If the employee files a complaint with the labor commissioner, the company will be liable for penalties and interest.

The complaint of the employee with the authority would stand futile because the employee is at fault for not completing the exit formalities. In general, the accounts department prepares the payment after having the 'No Dues Clearance Certificate', or otherwise, it is kept pending until all the desired documents are received.

Dear Prabat,

Please read the act again. The act states that gratuity is payable on termination of employment, which means it is payable when the person is no longer working, whether due to resignation or otherwise. There is nothing in the act or definitions that specifies the employee needs to complete exit formalities.

Therefore, the employee is very much eligible to claim his gratuity, regardless of his exit formality status.

Extract from the Act

Section 4: Payment of gratuity.

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease: