Dear All,

Need a few clarifications on Gratuity. We are a company in Bangalore. The following are my queries:

- Is it a statutory requirement to pay Gratuity or is it optional and at company’s discretion?
- Do we have to set aside the requisite amount every month or only pay it when someone becomes eligible for Gratuity? Where do we put this amount that we set aside? Should we open a separate Bank Account for it?
- If an employee leaves before 5 years, can we take the money accumulated for him and put it back into working capital?
- The account opened to set aside this amount – is it controlled by a statutory authority or can we maintain it by ourselves?

These are my current doubts. Would appreciate some clarity in this area from those who have experience. Kindly revert as it is a bit urgent.

Thank you all,

Reshma

Can a service of 4 years 10months and 11days constitute 5 years continuous service ?

"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."

Pl. note that I got this information in a Law Book (Bare Act,2004) i.e. The Payment of Gratuity Act,1972 (Publisher: Law Publishers () Pvt.Ltd. 18A-S.P.Marg,Post Box-1077,Allahabad-211 001. Phone:623735,623741 Fax-0532-622276. email: ; website: lawpublishersindia.com).

1. 4 years and 6 months (190 days = 1 year) where the company follows 5 day a week.
   
   2. 4 years and 8 months ( 240 days = 1 year) where the company follows 5 day a week.
   
   Is eligible for gratuity.The payment of gratuity ( second amendment) act, 1984 clarifies this. One needs to calculate the no of years and service completion as follows.
   
   A company which follows 5 day week
   
   Doj 1.05.2000 -
   
   01.05.2000 to 30.04.2001 - worked for 190 days
   01.05.2001 to 30.04.2002 - worked for 190days
   
   If we go by the above formula and if the person does not have any break in service he will be eligible for gratuity on 01.11.2004
   
   
2. As my knowledge goes, the gratuity will be paid based on date of joining and completion of years of service. It is not based on 4 yrs and 216 days. If the person crosses 5 years of service within that 216 days, then he need to be paid, i.e, based on the date of joining of an employee, the day when he completes 5 years of service, he will be eligible to get the gratuity. But whereas the calculation will be rounded off to the next higher or lower fraction after his 5 yrs completion. So no one will be eligible to get gratuity if he is not completed 5 years of service.
   
   The gratuity will be paid when an employee dies before completion of 5 years service, and will be paid to the dependent family member or nominee

I wish to add to what is already stated about maximum amount apyable under gratuity - instead of Rs.350000/- please read it as Rs.10 Lakhs which shall become law in couple of days as govt.has already approved  this limit .

Thanks