Gratuity Laws in India: Who is Eligible and How to Claim?
Gratuity Laws in India: Eligibility and Claim Process
What is Gratuity?
Gratuity is a financial benefit paid by an employer to an employee as a token of appreciation for the employee’s long and continuous service when they leave the job (retirement, resignation, or termination).
Who is Eligible for Gratuity?
To be eligible for gratuity, an employee must:
Have completed continuous service with the employer for at least 5 years.
(Certain exceptions may apply for death or disability before completing 5 years.)
Be employed in an establishment or company where gratuity is applicable.
Leave the service due to:
Retirement
Resignation (after 5 years)
Death or permanent disability
How is Gratuity Calculated?
Generally, gratuity is calculated based on the last drawn salary and years of service.
A common formula is:
- Gratuity=Last Drawn Salary×15×Number of Years of Service26\text{Gratuity} = \frac{\text{Last Drawn Salary} \times 15 \times \text{Number of Years of Service}}{26}Gratuity=26Last Drawn Salary×15×Number of Years of Service
The “15” represents 15 days’ wages, and “26” represents the number of working days in a month.
How to Claim Gratuity?
Apply to the Employer:
The employee (or nominee in case of death) must submit a written application to the employer.
Employer Processes the Claim:
The employer verifies eligibility and processes payment within a reasonable time.
If Employer Fails:
The employee can approach the labour commissioner or relevant authority for enforcement.
Important Case Law Related to Gratuity
1. Municipal Corporation of Delhi v. Association of Municipal Corporation Employees
Issue: Whether gratuity is payable on the basis of last drawn salary and whether the employer can reduce it arbitrarily.
Held: The court held that gratuity is a statutory right and must be paid as per the terms agreed or applicable rules without arbitrary deductions.
Principle: Gratuity cannot be withheld or reduced unfairly.
2. Sham Lal v. Union of India
Issue: Whether employees with less than 5 years service can claim gratuity on death or disablement.
Held: The court ruled that gratuity is payable irrespective of 5 years' continuous service in case of death or permanent disablement.
Principle: The 5-year rule is waived in cases of death/disability.
Key Points to Remember
Gratuity is a reward for long service, not a bonus or incentive.
The 5-year continuous service rule is generally mandatory except for death or disability.
Employers cannot deny gratuity unfairly or arbitrarily.
Nominees of deceased employees can claim gratuity.
Gratuity calculation is based on the last drawn salary and years of service.
Quick Recap:
Who is eligible? Employees with 5+ years of continuous service or in case of death/disability.
How to claim? Apply to the employer; if denied, approach labour authorities.
Case law highlights:
Employer must pay gratuity fairly (Municipal Corporation of Delhi case)
Gratuity payable despite less than 5 years service if death/disability occurs (Sham Lal case).
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