Calculation of years for Gratuity and Retrenchment compensation

Dear All,

I hope this message finds you well. I am reaching out to seek clarification on two specific technical matters related to the closure of our establishment and the corresponding employee compensation obligations.

1. Gratuity Entitlement
Upon closure, we intend to make a full and final payment covering all legitimate dues, including but not limited to bonuses, earned leave, notice pay, retrenchment compensation, and gratuity. The pertinent details of the employees in question are as follows:

PF Account No. 1008
Joining Date: 01/04/2011 Leave Date: 16/04/2011 Last Wages: 15 days Service Period: 0 Gratuity Due: Not applicable

PF Account No. 49
Joining Date: 01/12/2011 Leave Date: 31/03/2018 Last Wages: 314 Service Period: 6 years Gratuity Due: Rs. 28,260/-

PF Account No. 10083
Joining Date: 01/11/2018 Leave Date: 13/03/2024 Last Wages: 483 Service Period: 5 years Gratuity Due: Rs. 36,225/-

Please note that the gratuity amount of Rs. 28,260/- corresponding to PF Account No. 49 was mutually agreed upon and duly adjusted against an outstanding loan as of 31/03/2018, based on an oral agreement with the employee. While the employee has subsequently denied receipt of this amount, we possess documentation related to the loan account and ledger to support our position.

The employee subsequently joined another organization for approximately seven months before returning to our company, starting fresh employment with PF Account No. 10083 on 01/11/2018 and continuing until 13/03/2024. The question arises whether the employee is entitled to claim gratuity for the entire duration of service from 2011 to 2024, or if our position of granting gratuity solely for the five years of service from 2018 to 2024 is correct.

2. Retrenchment Compensation Calculation
Additionally, I seek your clarification regarding the calculation of retrenchment compensation. The employee is asserting a claim for retrenchment compensation covering 11 years of service, whereas we have compensated for only 5 years.

The Assistant Labour Commissioner appears to be of the opinion that breaks in service should reduce calculable years of service. However, we maintain that the period following the employee’s departure should not contribute to the total years of service recognized for this purpose. Upon rejoining, the employment should be classified as a new engagement, warranting compensation based solely on the actual years of service rendered.

I welcome your insights, opinions, and guidance regarding these critical issues. Thank you for your attention to this matter.

Best Regards,
NIRAJ SHAH

Dear Niraj Shah,

Thank you for reaching out with your questions. I will address each of your concerns separately.

1. Gratuity Entitlement:

As per the Payment of Gratuity Act, 1972 in India, an employee is eligible for gratuity after completing five years of continuous service. However, the term 'continuous service' is interpreted differently in various court judgments. If an employee resigns and rejoins the same employer, it is generally considered as a break in service. However, if there is a mutual agreement between the employer and the employee stating otherwise, it may be considered continuous service.

In your case, if there was no such agreement, it is likely that the employee is only eligible for gratuity for the separate periods of service (from 01/12/2011 to 31/03/2018 and from 01/11/2018 to 13/03/2024). The gratuity for the first period has already been adjusted against the loan. For the second period, the gratuity due is Rs. 36,225/- as you mentioned.

💡 Please make sure you have all the required documentation to substantiate your position.

2. Retrenchment Compensation Calculation:

As per the Industrial Disputes Act, 1947, retrenchment compensation is calculated based on the continuous service of the employee. Similar to the gratuity situation, if the employee resigns and rejoins, it is usually considered a break in service unless there is a mutual agreement stating otherwise.

Thus, unless there was an agreement that the service was continuous, the retrenchment compensation should be based on the actual years of service from 01/11/2018 to 13/03/2024 (5 years).

💼 I recommend seeking legal advice to ensure compliance with the laws and to avoid any potential disputes.

Please remember that these situations can be complex and may depend on the specific circumstances of the case. You may want to engage with a labor law consultant or attorney to help you navigate these issues.

👁️‍🗨️ To conclude:

- You are likely correct in providing gratuity and retrenchment compensation for the separate periods of service, unless there was an agreement stating otherwise.
- Make sure you have all necessary documentation to support your position.
- Consult a labor law attorney or consultant for further advice.

I hope this information is helpful and provides some clarity on your queries.