Understanding Gratuity: How Long Do You Really Need to Work to Qualify?

Dear Friends,

Wishing you all a very happy new year. I want to know about the gratuity rules. As I know, gratuity is entitled to an employee who has served for at least 5 years. But it is not exactly five years; it is something like 4 years and some number of days. I want to know the exact period.

Regards,
Jyoti Negi

Hi,

Strict interpretation of the Payment of Gratuity Act requires a person to complete 5 years of service. 240 days or 190 days will be counted only when the person completes 5 years. If a person works for 4 years and 11 months, then even if he completes 240 days or 190 days as the case may be, we can take the plea that he is not eligible for gratuity.

See section 2A of the Act which is reproduced below:

2A.

2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer - (a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than - (i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and (ii) two hundred and forty days, in any other case.

Having said this, I would advise organizations to take a liberal view on this. A liberal view would be 4 years and 240 days if you work for 6 days a week and 4 years and 190 days if you work for less than six days a week.

If you apply this logic, a person is eligible to receive gratuity if he gets paid a salary for 4 years and eight months in a period of 5 years where the establishment works for 6 days.

If the establishment works for less than 6 days a week, then a person getting paid a salary for 4 years and 6 months would be eligible.

I know many organizations take this liberal view.

In a nutshell legally it has to be 5 full years.

If you take a liberal view then it has to be 4 years and 240 days in case of a 6-day week and 4 years and 190 days in case of less than 6 days a week work.

Siva

Dear Tsivasankaran,

Suppose I have completed 4.10 years (yrmm) and I have a balance of 90 days of Earned Leave, for which PF is also deducted at the time of encasement. In this situation, can I make a claim for Gratuity?

Expecting a reply from all the members of the forum!

Regards,
Rahul Tiwari

Payment of Gratuity Act, 1972

&

Payment of gratuity (Punjab) Rules, 1973

Object: It is an Act to provide for a scheme for the payment of gratuity to employees

engaged in factories, mines, oilfields, plantations, ports, railway companies, and shops or

other establishments.

Applicability of the Act: Any employer of the above noted establishments where 10 or

more persons are employed or were employed on any day of the preceding twelve months

is liable to pay gratuity to its employees. Once the Act becomes applicable, it continues

even if the number of employees falls below ten.

Entitlement: Gratuity is payable to an employee (nominee – in case of death of

employee) who has rendered continuous services of five years or more on his termination

of employment, superannuation, retirement or resignation. Completion of continuous

service of five years is not necessary where the termination of employment is due to

death of disablement.

Calculation of gratuity amount: W x Y x 15 ÷ 26 [W = Last Wage drawn i.e. basic +

DA; Y = number of completed years of continuous service (six months or less to be

ignored and more than six months to be counted as full year)].

Maximum Limit : Rs. 3.5 lacs.

Time Limit for application to employer: Employee has to make an application in

Form-I to his employer within 30 days from the date the gratuity becomes payable.

Whom to apply in the case of non-payment by employer or dispute: Application in

Form - N is to be made to the “Controlling Authority” i.e. the Assistant Labour

Commissioner or the Labour-cum-Conciliation Officer of the concerned area within 90

days on the expiry of 30 days period of the employer.

Appeal : An aggrieved party can file an appeal to the Appellate Authority i.e. Additional

Labour Commissioner, Punjab within 60 days of the decision of the Controlling

Authority.

It is strictly 5 years. However, an employee who had worked for 5 yeears and more than 6 months will get gratuity for 6 years. That is, fraction of year in excess of six months will be counted as one year FOR THE PURPOSE OF AMOUNT OF gratuity payable AND NOT for ELIGIBILITY for gratuity.

In this respect please refer a leading case :An employee who has worked for 4 years 11 months and 10 days not eligible for gratuity as decided in P. Raghavalu and Sons Vs Additional Labour Court, Andhra Pradesh, as the qualifying phrases ‘part thereof in excess of six months' shall be taken only for calculation of gratuity and not for determining the eligibility of gratuity.

However under the Working Journalists and other Newspaper Employees (Condtions of Service) Act, 1955 which provides for the service conditions and other matters, provides that news paper employees need to complete three years of service for gratuity. Their rate of gratuity is also different and is subject to the length of service.

egards,

Madhu.T.K

Dear Rahul,

As per a strict interpretation of the Act, you cannot make a claim. However, some companies provide a more liberal interpretation.

Siva

Yes, you can claim for gratuity if you have completed continuous service for more than 4 years and 6 months.

Mr. Sudhakar,

Please let us know how we can claim with 4.6 years of continuous service. Is there any notification, amendment, or judgment regarding this matter? I am awaiting your reply.

Regards,
Rahul

Dear Sudhakar,

For employees other than newspaper employees, the minimum service required to claim gratuity under the Payment of Gratuity Act is 5 years, not a day less. Please refer to the case quoted by me in my earlier posting.

Regards,
Madhu.T.K

Dear Siva Sir,

Kindly help me. I worked for a computer firm for 12 years, and my last drawn salary was Rs. 13,095. I had sent my gratuity claim form, and the company has sanctioned only Rs. 32,000, which I am not accepting. Could you please advise me on what to do? Is Rs. 32k after 12 years of employment acceptable?

I am eagerly waiting for your response.

S. Dasgupta

Dear Dasgupta,

If we consider that your basic salary is 30% of your total salary, then the Gratuity amount of Rs. 32,000 is correct. The formula for calculating Gratuity is Last Basic * Number of years of service * 15/22.

Regards,
Harsha
Assistant Manager - HR

Dear Friends,

If a person works for six years in a college as a lecturer in Andhra Pradesh and then resigns, is he entitled to gratuity?

Regards,
Y S Sarma

Hi,

I have a question here in terms of gratuity. I have been working in the current organization for the last 5 years. I know I am eligible for gratuity, but my question is, what's next? Is this a one-time payment, or if I continue in this company for another 3 or 4 years, can I claim gratuity for those additional years as well? Please let me know the answer because based on your feedback, I will be considering my gratuity options.

Thanks,
Surya

Hi Karisurya!

Gratuity is a welfare benefit from the employer and is payable as a one-time payment only when an employee is retired or leaving the organization after completing 5 years of service. Therefore, gratuity is payable only after completing 5 years and the total service period at the time of retirement or resignation.

It's a simple process, so don't get baffled.

Hi Bhardwaj,

Thanks for the reply, but my understanding is that once we complete 5 years, we can take out gratuity even without resignation or retirement. Please correct me if I am wrong. Any other suggestions from anyone are welcome.

Surya

Group Gratuity: One of our employees has resigned from our organization, and he has been working with us for 7 years. His attendance record is as follows:

Year 1: 223
Year 2: 276
Year 3: 2281
Year 4: 246
Year 5: 238
Year 6: 204
Year 7 (From April 2015 to Dec 2015): 141

Could you please clarify if he is eligible for gratuity and provide the calculation for the amount if he is eligible?

Regards,
Vinayak