Gratuity eligibility service calculation - the employee did not work at least 240 days in 2 years

Dear Sir, This is Ramu, working as Plant-HR in the manufacturing sector. My query is on the calculation of gratuity-eligible service. One employee worked for a period of 10 years and left. Out of these 10 years, the employee did not work at least 240 days in 2 years. Can we reduce this 2-year period from gratuity eligibility service and make the gratuity for 8 years? Kindly advise on this issue.

With regards,

Ramu

Dear Ramu,

Thank you for reaching out with your question.

Understanding how gratuity is calculated in India can be a bit complex. The calculation of gratuity is governed by the Payment of Gratuity Act, 1972. According to this Act, an employee is eligible for gratuity if he/she has worked for at least five years in the same organization. However, there is a provision regarding continuous service where an employee is said to be in 'continuous service' for one year if he/she has worked for at least 240 days in that year.

In your specific case, it would not be appropriate to reduce the two years from the total service period for gratuity calculation. The reason for this is that the employee has still completed more than five years of service, making him eligible for gratuity. Therefore, even though the employee did not work at least 240 days in those two years, as long as the total service period is more than five years, he/she is eligible for gratuity.

Here's a simple step-by-step guide on how to calculate the gratuity:

1. Identify the last drawn salary (basic salary plus dearness allowance) of the employee.
2. Multiply this salary by 15/26.
3. Multiply the resulting figure by the number of years of service.

I hope this explanation is clear and helpful. Please feel free to reach out if you have any other questions on this topic.

👉 Remember, the key point here is that the employee is eligible for gratuity if he/she has worked for at least five years in the same organization, regardless of the number of days worked in each year.

Best wishes

Dear sir
Thanks for your clarification
But what I am asking is that can we make gratuity payment for 8 years service instead of 10 years by deducting 2 years serivice as the employee was not competed 240 days in last two years period.

Ramu

The Payment of Gratuity Act, 1972, which governs the gratuity payment in India, states that an employee is eligible for gratuity if they have rendered continuous service for five years. Continuous service, as per Section 2A of the act, means an employee who has been in service for a period of 240 days in a year, which is considered as one year. If an employee has not served 240 days in a year, it is not considered as a continuous service for that particular year. So, if in your case, the employee has not worked for at least 240 days in 2 years, those 2 years may not be considered for gratuity calculation. However, the other 8 years where the employee has served more than 240 days in each year will be considered for gratuity calculation. I would recommend you to please refer to the Payment of Gratuity Act, 1972 for more clarity.