Understanding Gratuity: Does Overseas Work Count Towards Continuous Service?

Dear All,

a) Suppose an employee works for an Indian company and transfers to a company abroad (Group company)...
1. Salary is processed and paid outside India. If the employee returns to India after 6 years, does the continuous period of service include the time worked abroad?
2. In a situation as above, but the salary is being processed and paid in India.

b) Should the provision for gratuity be created from the first year of service as per AS-15 (Employee Benefits)?

Regards,
Vijay L

The Payment of Gratuity Act is silent in respect of where the employee works. If there is no change in the employer's status, irrespective of whether the salary is computed as 'earned in India or Outside India', gratuity is payable. This is what I find. Since gratuity is a concept developed for the benefit of employees, it is expected to be inclined in that direction. Otherwise, the employer should be able to prove that on transfer to abroad the employee lost continuous service. Transfer, deputation, on duty, etc., are terms that come within the service conditions and, therefore, serve to clarify the regularity of service.

Regards, Madhu.T.K

Hi,

It depends on what conditions you have specified in the letter of transfer. If an employee is transferred to another country, then you must also make him eligible for Social Security Benefits of that country.

We must examine it in this context. Anyway, lots of companies must be facing this issue, let us hear from them.

Siva

Good questions! And the answers are spot on! We faced this problem like nobody's business. We had an employee who went abroad and returned to India, not once, but many times round. We had to determine whether the employee was to be paid gratuity during the gaps when the need to stay onsite was for a very long time (note: this is the open part of the law—it does not give you an idea of the timeline).

We finally agreed in principle that we had to pay the employee on two accounts:
1) The Payment Of Gratuity Act is not only silent on the movement of resources abroad, but it subtly allows the employer to come to any feasible conclusion;
2) We came to the conclusion that the employee had to move many times back and forth for our business reasons. Hence, morally, the employee deserved to be paid gratuity.

SK

Hi,

I think if a person is transferred abroad and is on your payroll, then they are eligible for gratuity even if they are working in another place. However, if they are no longer on your payroll, the employer can deny the payment of gratuity.

Yes, if you have completed five years of service without a break, you will be eligible for gratuity. It will be calculated by taking into account your notional basic pay plus DA components of your salary as if you were posted in India.

The fact of whether an employee is on the Indian company's payroll or not may be valid. But the intriguing point is that the Act does not specify this or any timeline in which Gratuity is payable if the employee is moving back and forth.

Take, for example, the IT Act - it clearly gives you a timeline to calculate a case where a person is a resident or non-resident.

By specifying a 5-year period of continuous service, the employer is free to decide whether the payroll becomes the governing factor or business reasons or what have you!

Hence, it must be clearly understood that the Act, as of date, is more intended to ensure that the employee does, in fact, get this amount.

Another question that comes to mind is whether a person can be paid twice the same type of amount in two different countries - e.g., of this being Social Security and Gratuity. My opinion remains the same - since the Act requires the employer to decide on this, it makes sense to ensure that a valid reason is provided to pay both if required, so long as the business reasons are justified.

SK

It depends on the legal entity of the company. The same company can have a number of branches within the country as well. If the entity is different, you can pay the gratuity eligible when he gets transferred.

Hi,

Is there a sample policy or guidelines on change in entity, especially in the case of a merger, where there is a change in the entity for the employee?

Hello,

I have been working with a company for the last 5 1/2 years. I started in India for the first 2 years and got "transferred" to the USA for the same group for the past 3.5 years. During my transfer, I was told that my service in the USA will be considered as a "continuity" of service for the group, and I was given a letter mentioning the same.

I am planning to quit from the USA and would like to know if I am eligible for Gratuity since I was a transfer employee assigned to work in the USA and I have completed 5 years. If yes, then the company should calculate my last drawn USA pay for this calculation, right?

Please help me understand.

Thanks,
Vee