My employee in Ludhiana 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 calculated based on an employee’s last drawn salary and is payable when the employee has completed a minimum of five years of continuous service, as stipulated under the Payment of Gratuity Act, 1972.

The key factors to determine gratuity eligibility and calculation are as follows:

• Eligibility for Gratuity:
  • According to Section 4 of the Payment of Gratuity Act, 1972, an employee is eligible for gratuity if they have rendered continuous service for not less than five years.
  • Continuous service is defined as uninterrupted service, which includes any absence from duty due to sickness, accident, or leave.
  • In case of termination due to death or disablement, gratuity is payable irrespective of the duration of service.
• Calculation of Gratuity:
  • The formula for calculating gratuity is: Gratuity = (Last drawn salary x 15/26) x Number of years of service
  • Where:
    • Last drawn salary includes basic pay and dearness allowance.
    • 15 represents the number of days for which gratuity is paid for each year of service.
    • 26 represents the number of working days in a month.
• Application for Gratuity:
  • An employee must submit a written application for gratuity to the employer within 30 days of the date of resignation.
  • The employer is obligated to respond and settle the gratuity claim within 30 days of receiving the application.
• Disputes Regarding Gratuity:
  • If an employer disputes the payment of gratuity, the employee may file an appeal with the Controlling Authority as per Section 7(7) of the Act.
  • The Controlling Authority will then make a decision, and if necessary, the matter can be escalated to an Appellate Authority under Section 8.

In summary, ensure that the employee meets the eligibility criteria and that the calculation aligns with the statutory provisions of the Payment of Gratuity Act, 1972. Disputes should be resolved through the appropriate legal channels as outlined in the Act.