Gratuity is a statutory entitlement under the Payment of Gratuity Act, 1972, not a discretionary benefit, and it applies to establishments with 10 or more employees.
Eligibility
Five years of continuous service with the same employer, payable on superannuation, retirement, resignation, or termination. The five year condition does not apply where employment ends due to death or disablement.
"Continuous service" is defined in Section 2A, and includes periods of authorised leave, lay-off and cessation of work not due to the employee's fault. A year in which an employee worked at least 240 days, or 190 days in a seasonal or below-ground establishment, counts as a year of continuous service.
Several High Courts have held that an employee who completes 4 years and 240 days in the fifth year qualifies, applying Section 2A. Other decisions have taken a stricter view, and the position is not uniform across the country. If you are in that band, the claim is worth making rather than abandoning, but do not treat it as settled.
The calculation
For employees covered by the Act:
Gratuity = (Last drawn basic + DA) × 15 ÷ 26 × completed years of service
The 26 represents working days in a month, and 15 represents 15 days' wages for each completed year. Service beyond six months in the final year is rounded up to a full year. There is a statutory ceiling on the amount payable, which has been revised upward over time, so confirm the current limit. Anything paid above the entitlement is ex gratia.
Claiming it
- Apply to the employer in Form I within 30 days of it becoming payable. Note that a claim is not invalid merely because it is late.
- The employer must pay within 30 days, failing which simple interest is payable for the delayed period.
- If it is refused or unpaid, apply to the Controlling Authority, which is usually the Assistant Labour Commissioner, in Form N. There is an appeal to the Appellate Authority.
When gratuity can be forfeited
Only in the limited circumstances in Section 4(6): wholly or partly, where termination is for wilful omission or negligence causing damage or loss, and wholly where termination is for riotous or disorderly conduct, or for an act constituting an offence involving moral turpitude committed in the course of employment. Forfeiture requires the termination to have been on those grounds, established properly.