My employee in Ahmedabad has claimed gratuity after resignation but my company is disputing the eligibility; how is gratuity calculated and when is it payable?

Detailed Legal Analysis

Gratuity is payable to employees in India under the Payment of Gratuity Act, 1972, when they complete a minimum period of service, and it is calculated based on their last drawn salary and the duration of their service.

In the case of an employee resigning from a company, gratuity is calculated as follows:

• Gratuity Amount = (Last Drawn Salary × 15/26) × Number of Years of Service
• Here, "Last Drawn Salary" refers to the basic salary plus dearness allowance.
• The factor "15/26" is used because the calculation assumes 15 days of salary for each completed year of service, and there are 26 working days in a month.

Eligibility criteria for receiving gratuity under the Payment of Gratuity Act, 1972 include:

• The employee must have completed at least five years of continuous service with the employer.
• In the case of termination due to death or disablement, the five-year condition does not apply.
• Resignation must not be due to misconduct or any other disqualifying actions as per Section 4(6) of the Act.

When an employee resigns, the employer must ensure that they meet the eligibility criteria. If there is a dispute regarding the eligibility, the employer can:

• Review the employment records to verify the duration of service and reasons for termination.
• Communicate the reasons for disputing the gratuity claim in writing to the employee.
• In case of disagreement, the employee can seek redressal by approaching the Controlling Authority under the Payment of Gratuity Act, 1972, as outlined in Section 7.
• The employer may also appeal against any decision made by the Controlling Authority as per Section 7(7) of the Act.

It is crucial for employers to comply with the provisions of the Payment of Gratuity Act, as failure to pay gratuity when due can result in penalties under Section 9 of the Act. Therefore, careful consideration of the employee's tenure and reasons for leaving is essential in determining gratuity eligibility.