Gratuity Dilemma: Can an Employee Claim It After 4 Years and 8 Months of Service?

As the company completes 5 years, kindly guide on how to proceed with gratuity settlement if an employee resigns after 4 years and 8 months of service.

Thanks

Dear Upendra,

A detailed discussion has taken place on this subject in the past. You may check the following thread:

https://www.citehr.com/647899-eligib...nths-28-a.html

Thanks,

Dinesh Divekar

Please shed light on this topic. If any employee exits after 4 years and 8 months, is the employee eligible for gratuity? As the company completes 5 years, kindly guide on how to proceed with gratuity settlement.

Hi Upendra,

In India, the Payment of Gratuity Act, 1972 mandates that an employee is eligible for gratuity if they have completed at least five years of continuous service with the same employer. However, there are some nuances to consider:

Eligibility Criteria for Gratuity:

Completion of Five Years:

An employee must complete five years of continuous service to be eligible for gratuity. However, if the employee has completed 4 years and 240 days in the fifth year, they might be considered eligible for gratuity under certain legal interpretations.

Continuous Service:

The term "continuous service" includes working days as well as approved leaves, provided there is no break in service.

Gratuity Settlement Process:

Once an employee is eligible for gratuity, the following steps should be followed for settlement:

Calculation of Gratuity:

Formula: Gratuity = (Last drawn salary * 15 * number of years of service) / 26. Last drawn salary includes basic salary and dearness allowance. The number of years of service is rounded down to the nearest full year. For instance, if an employee has served for 4 years and 8 months, it might be rounded to 5 years.

Application by Employee:

The employee can apply for gratuity using Form I.

Acknowledgment by Employer:

The employer should acknowledge the receipt of the application within 30 days.

Payment of Gratuity:

The gratuity should be paid within 30 days from the date it becomes due. If there is a delay in payment, the employer is liable to pay interest on the amount.

Gratuity Exemption:

Gratuity received by an employee is tax-free up to Rs. 20 lakh under Section 10(10) of the Income Tax Act, 1961.

Special Consideration for 4 Years and 8 Months:

The eligibility of an employee who has served 4 years and 8 months for gratuity depends on whether the organization or judicial interpretation considers the completion of 240 days in the fifth year as equivalent to five years of service.

Best Practice:

Consult Legal Counsel: It’s advisable to consult a legal professional or HR expert to ensure compliance with the latest regulations and interpretations.

Clear Policy: The company should have a clear policy regarding gratuity eligibility and settlement, which should be communicated to employees.

Thanks,