Deduction from gratuity at the time of Full & Final settlement

Is it permissible for an employer to withhold a portion of the gratuity if an employee does not fulfill the three-month notice period upon resignation?

Hi,

No, it has no legal validity.

As stipulated under the Gratuity Act, gratuity can only be forfeited in limited circumstances. Gratuity can be forfeited when an employee's services have been terminated on account of any act causing damage or loss to or destruction of property belonging to the employer. The forfeiture shall be to the extent of the loss or damage. Further, gratuity may be wholly or partially forfeited if the services of the employee have been terminated for riotous or disorderly conduct, any act of violence, or offenses involving moral turpitude during the course of employment. In any case, it would be unlawful to forfeit the amount of gratuity without allowing the employee to show cause and without determining the extent of loss or damage caused.

No, you can't deduct any notice pay amount from the amount of Gratuity Payment to the employee. It is illegal. The act has provisions for forfeiting of Gratuity on certain misconducts, but not for recovery of the notice period.

The Payment of Gratuity Act 1972 does not allow for any deduction from the gratuity payable as per the Act. Indeed, the Act specifies the penalty for the employer and the officials responsible for complying with the Act, which includes imprisonment, a fine, or both. That is the clear-cut position.

Yet, I had worked out a via media to overcome the statutory requirement while effecting the recovery. This is done by obtaining a pre-receipt for the full amount of gratuity, whereas the employee is actually given only the deducted amount. This approach has been successful where the employee also agreed to the above formula, and fortunately, there have been no issues later.

True. However, when it is deducted for the recovery of Notice Pay, which is again an illegal deduction or recovery from an employee, it will be difficult to defend. Notice pay means an amount payable by an employer in order to terminate an employee. In the case of managers or employees having functional responsibilities of a manager, you can have a notice period of one or three months. Still, in respect of others, you cannot have any notice period in the contract of employment. If there is any notice period mentioned in the contract of employment, that will not be legally enforceable because the law does not require an employee to give notice or pay in lieu of notice to leave an employer. However, there is a specific provision under the law which states that in order to terminate an employer, the employer should give notice or pay salary in lieu of it. The notice required is one month, and only when the establishment is a factory, mine, or a plantation employing 100 or more employees, can the notice period be three months. Therefore, it is better not to go for recovery.

Certainly a big NO. You cannot deduct any amount from the gratuity amount payable to an employee. As an employer, you can make such adjustments from the salaries/F&F amount but should not adjust from the gratuity or provident fund amount payable to an employee.