How to Calculate Gratuity with Multiple Breaks in Service at the Same Company?

I worked in a factory for more than 9 years and quit for some reasons. Later on, I rejoined the same company after 3 years and quit again after 3 years. After one year, I rejoined the company and have continued with the company to date. Thus, I had 2 breaks in the total period of 26 years of service in the same company. My question is, how many years of service should be considered for the calculation of gratuity?

Didn't you receive gratuity for the first period of 9 years when you left the company? Why didn't the company pay you gratuity then?

Sir, due to my unawareness about the payment of gratuity at that time, I neither claimed it nor did the company pay it.

You, as an employee, need not claim gratuity. It is the responsibility of the employer to pay gratuity within 30 days of your leaving. Now, if the company has not paid it, and you were allowed to rejoin the company after 3 years, the period between leaving the company after 9 years and joining back shall be treated as a break in service. Adding the three years in the second spell as continuous to the nine years, when the second spell also went without any gratuity payment, and the company allowed you to continue after a gap of one year, the same would also account for service.

The question is whether the company had recorded the gaps as not in service or not. If you had resigned and the company had relieved you properly, then the only obligation as far as the company is concerned is to pay you gratuity for the first service of 9 years now with interest. The present rate of gratuity is 10% per annum. Since the second service contained only three years, that period of service will not entitle you to any gratuity. Similarly, if you do not have five years in the present service since your rejoining, then you will not receive any gratuity for this period of service either.

It may also happen that when you left after the first set of service, the company was not covered by the Payment of Gratuity Act. Therefore, please check if the company was covered by the Gratuity law at that period. If your undertaking is a factory/mine/plantation, the Payment of Gratuity Act would be applicable to it irrespective of the number of employees in it. But if not a factory/mine or plantation, but was carrying out some trading activities, then in order to make the Gratuity law applicable, there should be at least ten employees in your company.

If there was a delay in the payment of gratuity, the company can pay it now with interest. The amount of gratuity would be computed based on the salary that you earned at the time of leaving the company after your first 9 years of service. At the same time, if your leaving was just casual, but the company had ignored it without initiating any action for not reporting and allowed you to rejoin without endorsing the break in service as a period without any service benefits, then the employer will find it difficult to find a way out. In such a scenario, you will be in a positive position because if you can establish that the gap was only technical, then your gratuity will have to be calculated based on the present salary, which will obviously be higher than the past wages, and the reckonable service would be 26 years.

Another possibility is that the employer can compute gratuity based on the present salary but for a number of years of service by counting the breaks in service, say 3 years after the first period of service and one year after the second period of service, as breaks in service.

I disagree with some of Mr. Madhu's contentions. He has worked for 26 years, of which the first 14 years will not count because of a service break. So, he will now get gratuity for 12 years.

He cannot now claim gratuity for the first 9 years because the period of limitation (3 years) will apply. If you did not claim an amount for 3 years, you are disallowed from claiming it thereafter. There is a provision for condonation of delay, but 20 years are not likely to be excused by the courts.

On the other hand, it is possible that the company management is considering gratuity for you for the full period as you have worked with them for so long. So perhaps you can just ask them what they plan to do for your gratuity.

You are only entitled to receive gratuity for the 9 years worked in the first phase. It is not easy to claim back the gratuity because it is already time-barred. However, you still need to file a claim before the statutory authority; let us see what happens.

The remaining working period of 17 years holds no merit because you have not worked on any case for a continuous period of 5 years.

Prabhat-ji, his current tenure must be 12 years, right? He has worked for 26 years, out of which 9 and 3 were before the current period.

Mr. Saswat, the employee was having some issues because he left the job within an interval of 3 or 4 years of working. He rejoined the company as per his wish, as it appears from his posting. The poster should present his case with a timeline to provide a clear understanding and make suitable suggestions.

Based on the data, the employee will be eligible for gratuity for continuous service of over 5 years or more if there is no service break. People often grow weary of sharing information but seek legal solutions to their issues, which can be a challenging task. The employer can simply deny, in a single line, that records for that period do not exist.

Applicability of Section 7 of the Payment of Gratuity Act

In this case, it is not section 7(7) of the Payment of Gratuity Act but section 7(2) that will be applicable. Section 7(1) states that a person who is eligible for payment of gratuity shall send a written application to the employer, within the prescribed time and form, for the payment of such gratuity. Subsection 2 of section 7 specifies that the employer shall determine the amount of gratuity, whether an application as per subsection (1) has been made or not, and provide written notice to the recipient of the gratuity and the controlling authority, detailing the determined amount of gratuity. It is evident that the employee is not required to claim the gratuity. Even if the employee does not claim it, the employer must calculate and disburse the gratuity within 30 days (as stipulated in subsection 3 of section 7).

Appeal Process Under Section 7(7)

When an appeal is lodged under section 7(7), it must be submitted within 60 days. The section also allows for an additional 60 days under genuine circumstances. In The Secretary, Sree Avittom Thirunal Hospital v. State of Kerala, 2023 SCC, it was noted that when enacting Section 7(7) of the Act in 1972, the legislature intentionally excluded the application of the Limitation Act by setting a 60-day appeal deadline extendable by another 60 days. Otherwise, the standard appeal limitation under the Limitation Act is 30 days.

Timeframe for Filing an Appeal

The crucial aspect is that the 60 days plus 60 days mentioned in the Payment of Gratuity Act pertain to the timeframe for filing an appeal against any authority's decision. In this instance, the employer has neither calculated the gratuity nor informed the employee to collect the amount (via form L) or that the gratuity claim has been declined (via form M). Consequently, the employee is entitled to receive the gratuity with 10% annual interest. The interest amount cannot exceed the principal sum, and for periods exceeding 10 years, based on the initial 9 years of service, no interest will accrue, with the interest capped at the principal gratuity amount.

Hi, you may kindly note that unless it is the fault of the employer, if you are quitting a company after serving less than 5 years, you are not entitled to any gratuity payment. Only when you serve 5 years and above continuously are you eligible for gratuity payment. At present, while you are still in service with the company, only when you leave can you claim gratuity for the current service rendered.

I agree with the observations of Madhuji for the prime reason that it's the responsibility of the employer to compute the gratuity due and intimate the employee (in form No.L) who left, inviting him (or heir) to receive the gratuity thus computed. It's the fault on the part of the employer, and they have to disburse gratuity with accrued interest until full settlement.

Court Cases on Gratuity Payment

It's worth considering a few settled court cases in the matter for a proper understanding of the provisions:

In Gangahanume Gowda v. Karnataka Agro Industries Corpn. Ltd., (2003) 3 SCC 40, it was decided that the interest on delayed payment of gratuity is mandatory and not discretionary. The Gujarat High Court, through Justice Biren Vaishnav, reiterated that interest on delayed payment of gratuity is mandatory and not discretionary. The petitioner had prayed for a declaration that the respondent's action in not paying the entire amount of Rs 10 lakhs towards gratuity to the petitioner was arbitrary. Hence, a direction was sought that respondents be directed to pay the remaining amount of gratuity to the petitioner along with 18% interest from the date of his retirement. The High Court expressed that, as per the Supreme Court decision of H. Gangahanume Gowda v. Karnataka Agro Industries Corpn. Ltd., (2003) 3 SCC 40, the interest on delayed payment of gratuity is mandatory and not discretionary.

Consequences of Non-Payment of Gratuity

If the employer doesn't pay gratuity, in cases related to the non-payment of gratuity under this Act, the employer could face imprisonment for a term not less than six months but up to two years unless the court, with documented reasons, believes that a lesser term of imprisonment or a fine would serve the interests of justice.

Section 14: Act to Override Other Enactments

Also, read this section which will have an overriding effect over other acts: "Section: 14 Act to override other enactments, etc. The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act or in any instrument or contract having effect by virtue of any enactment other than this Act."

Limitation for Appeals Under the Payment of Gratuity Act

In the case of Indian Red-Cross Society vs Vidyaben H. Vyas on 27 August 2003, the Gujarat High Court held that the limitation prescribed under the Payment of Gratuity Act is 60 days for the purpose of preferring an appeal. The appellate authority is empowered to extend the period of limitation by another sixty days. The legal position enunciated by the Supreme Court in Shantilal M. Bhayani V. Shanti Bai must be understood in the context of the Limitation Act 1963. The Division Bench of Calcutta High Court, Andhra Pradesh High Court, and Madras High Court have concluded that limitation is not applicable to the appellate authority as it is an executive authority vested with quasi-judicial powers and, therefore, Section 5 to 25 of the Limitation Act do not apply to the persona designata or administrative authorities.

Judicial Observations on Gratuity Issues

The controlling authority had not committed any error, and there is no procedural irregularity by either of the authorities. The reasons given by both authorities are based on oral and documentary evidence produced before them, and the findings are not baseless or perverse. The Apex Court has considered these aspects in the case of ROSHAN DEEN V. PREETILAL, 2002 (1) SCC PAGE 100, where it observed that the purpose of powers conferred on the High Court is to advance justice, not to thwart it, even where justice is the by-product of an erroneous interpretation of law.

[Source: https://www.scconline.com/blog/post/2022/05/10/if-there-is-a-delay-in-payment-of-gratuity-whether-interest-on-delayed-gratuity-will-be-mandatory-or-discretionary-gujarat-high-court-retirement-employee-superannuation/]

[Source: https://indiankanoon.org/doc/1190655/]

For the calculation of gratuity, continuous service is a key factor. However, breaks in service can impact how the total service period is counted. Based on your scenario:

- You worked in the company for a total of 26 years but had two breaks during that time.
- Gratuity is calculated based on the years of continuous service, but breaks do not necessarily disqualify you unless the breaks were considered a termination of service and not treated as authorized leave or temporary separation with continuity maintained.

According to the Payment of Gratuity Act, 1972 in India:

1. Continuous Service: If the gaps between your employment were considered interruptions and your service was not carried over, those breaks may not count towards your total service for gratuity.
2. Employment Resumption: If the company treated your rejoining after each break as a fresh employment start, only the periods where you worked without a break will be counted.
3. Total Service Consideration: If the company did not break your continuity of service and you were treated as if on leave during the periods you were not working, the entire 26 years of service might be counted.

Gratuity is calculated based on continuous service with the employer. Since you had two breaks in your service, the calculation depends on how your employer treated those breaks. If the employer considered each rejoining as a new employment, the service period would be calculated separately for each stretch. If the breaks were not considered an interruption in service (e.g., if they were treated as sabbaticals or authorized leave), the full 26 years might be eligible for gratuity.

Suggestion:

To clarify how much of your total service is eligible for gratuity, you should:

1. Check your employment records with the HR department to see if your service was considered continuous or if each rejoining was treated as a fresh start.
2. Refer to your company's gratuity policy or discuss with the HR department for specifics about how the breaks were treated in terms of gratuity calculation.
3. If the company did not break continuity officially, you may be eligible for gratuity based on the entire 26 years, but if the breaks were treated as separations, only the periods of actual work without breaks may be counted.

So far as the breaks in the continuity of service are concerned, it's not practical to count the absence/breaks as 'service rendered'—a break is a break. But for the purposes of computation, it's fair to calculate for the first spell taking the last pay drawn of this spell itself; this is one portion. For the second spell again, the qualifying service will be reckoned from the date he rejoined till the end, computing here also at LPD; this will be the second portion. However, both combined, the overall limit of Rs. 20 lakhs will apply. I think this method is reasonable. This was exactly what happened in my own case also.

In my case, it was slightly different with respect to the breaks. I had, technically, a break, but without a break, I'm not trying to confuse anyone. Due to the closure of my erstwhile company, all the services of employees (about 3300 persons) were treated as 'terminated' as of 28.2.2001, and accordingly, everyone was settled. Afterwards, about less than 100 employees out of these 'terminated' lot were reengaged at LPD rates w.e.f. 1.3.2001, continuously on the same (essential roles), on a contract basis under certain terms for over 7 years. Some were relieved in between for whom compensation was paid as per terms as terminal benefit once again.

Both the services were treated as separate. All contract employees who worked over 5 years of continuous service were paid 'gratuity' once again. No Form L was issued. There was a delay of over a month that occurred; the union claimed gratuity with interest via a court case which was won, and gratuity was paid with interest till the date of settlement.

Dear Mr. PKS,

Presently, you are in the same organization where you initially served for 9 years. You can request your employer to consider the gratuity for the first 9 years before the initial break period as one part, and the gratuity for your last continuous service period as another part. However, as per the provisions of the Gratuity Act 1972, you cannot claim gratuity for your first 9 years of service.

Regards,