Gratuity is the term that is used to describe the amount of money that you receive as an employee after leaving your job. It is paid in case of long service to the same employer. Gratuity is payable after 5 years of continuous service under the Payment of Gratuity Act, 1 of 972. But there is a little twist.
Is 4 Years 7 Months Eligible for Gratuity?
4 years and 7 months don’t qualify for the Gratuity, As mentioned by the Madras High court, an individual must have worked for 4 years and 240 months to be eligible for Gratuity. If we break 4 years and 7 months into days then we find that is only about 4 years and 210 which is less than the minimum criteria. But if you worked extra overtime or your company has a relaxed policy, exceptions exist.
Rule for Gratuity Eligibility
The general rule is quite simple. Gratuity accrues if an employee has worked with a particular company for at least 5 years. Courts have, however, explained the clause 5 years.
The Madras High Court held that a worker of 240 days in the fifth year is eligible. That means 4 years and 240 days will amount to 5 years. It is specifically applicable when the employer allows a 6-day week.
Why 240 Days Matters?
The 240 days come from labor laws. In simple words, it is considered a complete working year. If you served 240 days in your fifth year, then it is rounded to 5 years.
However, this is only applicable when:
- More than 10 employees working
- You working without breaks
Why Does the 5 Years Rule Exist?
The gratuity system is one type of benefit for employees in return for their long-term loyalty. It’s retirement support or financial security after leaving a job. For those who have served for less than 5 years, it is thought to be a very meager period for gratuity entitlement.
How is Gratuity Calculated?
The formula is pretty straightforward:
- Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26
Here,
- The latest drawn salary is based on basic pay and dearness allowance
- Years of service to be rounded off to the nearest year.
For example: An employee has served 5 years and 9 months which is rounded to 6 years
What about I Leaving after 4.5 Years?
If you are leaving after 4 years and 6 months then you do not qualify outright. You will have to serve 4 years and 240 days before you’ll be eligible for gratuity. If your fifth year contains fewer days then gratuity will not be payable.
Legal Clarity
Court judgments are marginally in favor of the employees. But companies strictly observe the rule of “5 years “.
In 4 years and 7 months, unless the 240-day criterion is met gratuity will not be claimed.
Exceptions
- Gratuity rules are different in the following
- Death or disability of an employee.
- Companies choose to pay gratuity voluntarily.
- Once more, the “5-year rule” does not apply here.
Conclusion
In conclusion, 5 years of service is required for gratuity qualification. 4 years 7 months is short service, unless you complete 240 days in the fifth year. Gratuity is a benefit rather than the entitlement of short-term employee members. Lastly, Gratuity benefits are not entitled according to laws at 4 years and 7 months.
