Understanding Gratuity Eligibility: How Do Loss of Pay Leaves Affect Continuous Service?

I have seen the Supreme Court ruling on the minimum period to serve in a company, which is 4 years and 240 days of service to be eligible for gratuity. The ruling specifies that there should be 240 days of continuous service in the 5th year. Now, my questions are:
1. What does continuous service mean?
2. If I have had a few days of loss of pay leaves in my 5th year, how many days do I need to work in the 5th year to qualify for gratuity?

Please clarify my doubts. Thanks in advance.

Cheers,
Ram

Dear Ram,

Please go through Section 2A of the Payment of Gratuity Act, 1972 for both of your queries.

Regards,
R.N. Khola
(Labour Law & Legal Consultants)
09810405361

Sanctioned leave of any kind is included for the purpose of reckoning 240 days.

Leave Without Pay, being sanctioned leave, will be treated as part of the 240 days for calculating eligibility for Gratuity.

Best Wishes, Vasant Nair 09717726667

Regarding your query:
1. 240 days of continuous service include Loss of Pay (LOP) as authorized by the act. Therefore, you are eligible as per the act.

Dear Ram,

As provided under the Payment of Gratuity Act, continuous service includes all kinds of leave unless there is a break in service by an express order. The requirement of 240 days of service is necessary for continuous service in any year. An individual is not entitled to gratuity unless they have worked for 240 days in a year. However, the 240 days of service would encompass absences due to sickness, accidents, leaves (even without leave), lay off, strike, lockout, or cessation of work not caused by any fault of the employee.

I hope the above clarifies.

KK Nair

Dear Ram,

Continuous service. For the purposes of this Act, an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, lay-off, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

In the fifth year of service, one must have drawn the salary up to 240 days; then, he shall be considered as a continuous year of service. And gratuity shall be payable if one has rendered service for 240 days in the fifth year.

Thanks,
Arif Khan
9891578605

My personal view is that Section 2A "continuous service" and Section 4 "Payment of Gratuity" should be read separately. I feel that 240 days come into the picture only after the initial completion of 5 years as per Section 4, where it specifically mentions that:

"Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years."

While referring to the judgment of Madras High Court - Mettur Beardsell Ltd, I found the following:

The fact of the case is as below:
1. Employees Joined Mettur Textiles (Private) Ltd., 23rd December 1977
2. Name of the company changed to Mettur Textiles - effective 1st Jan 1983, due to this reason he ceased to be an employee of Mettur Textiles Ltd effective 31.12.1983
Total Number of years of service here is 23-12-1977 to 31-12-1983 = 5 years and 8 days
3. As of 31.12.1983 - the employee has resigned from services and relieved on the said date.
The main question here is that the employee was getting a salary less than 1000/- for a continuous period of 5 years to be eligible for gratuity.

Another case in the Supreme Court was of Lalappa Lingappa Vs Vishnu Mills: In this case, the employee had served the company for more than 12 years and had a break in service before the payment of gratuity.

I have not come across companies taking the stand of these above 2 cases and considering the payment of gratuity after completing 4 years and 240 days.

Also, I have not seen any more cases coming up with the same kind of issues.

There is no amendment or change as well in the Act as such.

To conclude, it is not very clear in the above 2 cases if the judgment was given considering that the employee had served more than 5 years but it was not continuous service. The judgment is not specific about considering 4 years and 240 days as eligibility for the payment of gratuity.

Please correct me if I am wrong. Even I need clarity on this issue.

Thanks

The condition of having worked and drawn pay for 240 days in the Vth year shall entitle an employee to claim gratuity only if his services were terminated by the employer and not by his leaving service on his own.

This is in view of the fact that even otherwise an employee is entitled to claim gratuity if he has rendered continuous services of 5 years provided he has also drawn pay/worked for 240 days in each such year. The condition of 5 years has not been amended in the Act, but only its interpretation under the particular facts & circumstances of that case.

S.C. Verma

Clarification on Gratuity Calculation

Please clarify my doubt:

1. Does gratuity calculate for the resigned period?
2. If a staff member resigns 1 or 2 months before completing 5 years and works the notice period, do we need to calculate gratuity?

Regards,
Hema

I completed five years in June 2013 and resigned from the company in November 2013. In 2010, I took leave without pay as I was sick. Now, they are saying that there is a shortfall of 150 days in the five-year period for gratuity, so I cannot claim the gratuity amount. I would like to understand whether leave without pay during continuous service affects the gratuity calculation.

Thanks & Regards,
Ruchi

I completed 5 years in June 2013 and resigned from the company in November 2013. In 2010, I took leave without pay due to illness. Now, they are saying that there is a shortfall of 150 days in my 5 years of service for gratuity eligibility. They claim I cannot receive the gratuity amount. I would like to understand if a leave without pay during continuous service affects the gratuity tenure.

Thanks & Regards,
Ruchi

From "Thiyagu": I have seen Gratuity Act states that the minimum period to serve in a company is not less than five years to be eligible for gratuity. However, some people have been told that gratuity is eligible if the minimum duration served is 4 years and 240 days, which can be rounded up to five years. Yet, I have not received a PDF as proof of eligibility for serving 4 years and 240 days. Kindly share the PDF if it is available.