Payment of Gratuity before 5 years of continuous service.

Payment of Gratuity before 5 years of continuous service.
PF & ESI , by Chiranjibi  on : April 15, 2019


An employee was terminated after the completion of the project he had been working on. He had worked for 4 years and six months till his date of termination. His termination was not due to his wrongful behavior but the completion of the project. Is he entitled to any gratuity from the company?

Gratuity is any amount that is paid by the owner of the business to his employees for his/her rendered services to the organization for the tenure of his/her services.

However, the amount that is paid to the employee is not just any amount, and it is not given to all the employees.

Gratuity is only given to those employees who have completed at least five years of continuous services to the organization. The amount of gratuity is basically a fifteen day salary for each completed year of service.

What happens when the employee quits the job before five years of service?

Gratuity is only paid after the completion of five years of continuous service to the entity. If the employee quits before this period, he is not entitled to any gratuity.

What happens when the employee is terminated by the entity? A. due to his bad behaviours B. due to any other reason

A. Termination due to bad behaviour of the employee

If the employee has been terminated due to his bad behaviours (theft, misuse of property, violence etc) he would NOT be entitled to any gratuity WHATSOEVER from the employer.

B. Termination due to any other reason

Payment of Gratuity act, does not identify the distinction between an employee terminated (due to other reasons) and the employee quitting the job on his own accord. That means for the law, quitting by the employee and termination due to any other reason will be treated as the same thing.

So, the employee terminated will be treated same as the employee quitting the job, NO GRATUITY will be paid UNLESS he has completed FIVE years of continuous service with the employer.

Rigidity of the prescribed "FIVE YEARS" of continuous service

The supreme court has ruled that 240 working days in the fifth year would enable the employee to receive gratuity.

"Judgment from Supreme Court: (on completion of FIVE YEARS)

"Yes, by virtue of the judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10months 11days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."

Further , as per SC , a year means 240 working days

Gratuity is part of my CTC (cost to company). If I leave the services of the company before five years, will I be able to claim the gratuity thats been added up till date?

If you leave your company before the completion of five years, you would not be eligible to claim any gratuity.

Side Note: The Gratuity that is in your CTC gets deposited to the company's "provision for Gratuity account". So the Gratuity that you see in your CTC means that the company is making a provision every month in your name towards gratuity. Once you become eligible to claim gratuity, the company will pay the due amount from this provision.

A company with a lot of employees will make proper provisions to ensure that when the payment becomes due, there will be a seperate designated fund, enough to provide the employee without affecting the operations of a company.