Gratuity Dilemma: Should We Count 5.5 or 5.8 Years for an Employee's Service?

Hi Anybody, One of our employees' service was completed 5.5 years ago. Subsequently, he was admitted to the hospital for ESI leave, and now he is unable to continue working due to his health condition. The question at hand is how many years should be calculated for gratuity: 5.5 years or 5.8 years? If it is 5.8 years, should we calculate it as 6 years or 5 years only? Your suggestions are appreciated. Kindly advise. Thank you.

For calculations, the years are rounded off! Even if it is 5.5 or 5.8, for calculations, they will be rounded off to 6 years!

Dear Professional,

Greetings!

Key points to remember for Gratuity Calculation:

Minimum 5 years required:
To be eligible for gratuity, an employee needs to have completed at least 5 years of service with the company.

Rounding off:
If you have worked for a period exceeding 5 years but not reaching 6 years (like 5 years and 11 months), it will be rounded down to 5 years for gratuity calculation.

Dear Member,

Please note that if this employee has worked continuously for five years and in the sixth year has worked for more than six months, then they are eligible to receive gratuity from the employer for six years.

Regards,
R N KHOLA.

Gratuity Calculation Guidelines

Generally, for the purpose of calculating gratuity, any part period over and above six months is to be considered as one year. Accordingly, if the employee has served for 5.5 years, it should be calculated as 6 years as per the Act. For eligibility for gratuity payment, one should have completed 5 years of continuous service in the organization.

As per Sec. 4(2) of the Act, for every completed year of service or part thereof in excess of six months, gratuity shall be paid to an employee at the rate of fifteen days of wages based on the rate of wages last drawn by the employee concerned.

For this purpose, the term continuous service is defined under Sec. 2A of the Act.

Regards,

In this scenario, gratuity is calculated based on the completed years of service, as defined under the Payment of Gratuity Act, 1972. Here's how you can calculate:

Key Points to Consider:

Continuous Service:

Any period where the employee is absent due to illness (such as ESI leave) is still considered as continuous service, as long as the employment relationship has not been terminated.

Gratuity Calculation Rule:

Gratuity is calculated based on completed years of service, and any fraction of a year greater than 6 months (i.e., 0.5 or more) is rounded up to the next full year. For fractions less than 6 months, the service is rounded down to the last completed year.

In Your Case:

Service Duration:

5.5 years + 3 months of ESI leave = 5.8 years (total service period).

Rounding Rule:

Since 5.8 years > 5.5 years, it is rounded up to 6 years.

Final Gratuity Period:

The employee's gratuity should be calculated for 6 years.

Legal Reference:

Under Section 2A of the Payment of Gratuity Act, the following is considered as continuous service: Absence due to sickness, accident, or medical leave where the employee has not been terminated or resigned.

Final Suggestion:

You should calculate the gratuity for 6 years, as the total service (5.8 years) qualifies for rounding up to the next full year.

Clarification on Service Duration

Please ensure it's not "5 years & 5 months" but 5 years & 6 months. Continuous service during this period is an important aspect. If so, 5 years + 6 months will be counted as 6 years.