Are You Entitled To Gratuity Before Completing 5 Years Of Service?

Gratuity is a statutory retirement benefit under the Payment of Gratuity Act, 1972, and is often included in an employee’s cost to company (CTC). Typically, gratuity becomes payable after completing 5 years of continuous service with an organisation. However, the law provides an exception that allows eligibility before completing a full 5 years. This provision applies when certain conditions related to continuous service are met.

Eligibility Before 5 Years: The 4 Years And 240 Days Rule

An employee can qualify for gratuity if they complete more than 4 years and 240 days of continuous service with the same employer. This means that if an employee works for 4 years and completes at least 240 days in the fifth year, the law considers it equivalent to 5 years of service. For example, an employee who joined on January 1, 2021, would normally complete 5 years on January 1, 2026. But if they resign after August 29, 2025, they would have completed 4 years and 240 days, making them eligible for gratuity.

Meaning Of Continuous Service Under The Act

Continuous service is defined based on the number of days worked in a year. For most establishments, an employee is considered to have completed a year if they have worked at least 240 days. For employees in mines or organisations operating fewer than 6 days a week, the threshold is 190 days. If an employee completes 240 days in the fifth year, that year is counted as a full year, making the total service period equivalent to 5 years.

Exceptions To The 5-Year Rule

The requirement of completing 5 years does not apply in cases of death or disablement. In such situations, gratuity becomes payable regardless of the length of service. This ensures financial support for employees or their families during unforeseen circumstances.

Applicability Of The Payment Of Gratuity Act

The Act applies to organisations that have employed at least 10 persons on any single day during the preceding 12 months. Once covered, the organisation remains under the Act even if the employee count later falls below 10. This provision ensures continuity of compliance and protection for employees.

Conclusion

While gratuity is generally associated with completing 5 full years of service, employees who have completed 4 years and 240 days may also be eligible under the Act. Understanding these rules helps employees plan better and ensures they receive benefits they are entitled to. Organisations must comply with these provisions to maintain statutory obligations.

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