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

Detailed Legal Analysis

The calculation and payment of gratuity in India are governed by the Payment of Gratuity Act, 1972, which outlines the eligibility criteria and the method of calculation.

Gratuity is payable to an employee upon termination of employment after completing a minimum of five years of continuous service, which can occur due to resignation, retirement, or death. The key points regarding gratuity calculation and eligibility are as follows:

• Eligibility: An employee is eligible for gratuity if they have rendered continuous service for at least five years. The service period can be computed in the following ways:
  • Service in a single organization must total to five years.
  • In cases of resignation, the employee must not have been dismissed for misconduct.
  • For employees who die or become disabled, the five-year service requirement does not apply.
• Calculation of Gratuity: The gratuity amount is calculated using the formula:
  • Gratuity = (Last drawn salary × 15/26) × Number of years of service
  • Here, the last drawn salary includes basic pay and dearness allowance only.
  • The factor 15/26 is used as it accounts for the number of working days in a month (26 working days).
• Payment Timeline: According to Section 7 of the Payment of Gratuity Act, gratuity must be paid within 30 days from the date it becomes payable. In case of delay, the employer is liable to pay interest at the rate of 10% per annum for the period of delay.
• Dispute Resolution: If there is a dispute regarding gratuity eligibility, the employee can file an application with the Controlling Authority as per Section 8 of the Payment of Gratuity Act. The authority will determine the eligibility and the amount payable.

It is essential for employers to maintain proper records of employee service and salary to accurately calculate gratuity and ensure compliance with the law. Employers should also be aware of the provisions of the act to avoid disputes regarding gratuity claims.