My employee in Salem 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 mandates gratuity for employees who have completed a minimum of five years of service with the same employer.

Gratuity is payable when an employee resigns, retires, or is terminated, provided they meet the eligibility criteria. Here’s how gratuity is calculated and the conditions under which it is payable:

• Eligibility Criteria:
  • An employee must have completed at least five years of continuous service with the employer.
  • Gratuity is payable upon resignation, retirement, or termination of employment (other than dismissal for misconduct).
• Calculation of Gratuity:
  • The formula for calculating gratuity is: Gratuity = (Last drawn salary × 15/26) × Number of years of service.
  • Here, the 'last drawn salary' refers to the basic salary plus dearness allowance.
  • The factor 15/26 is used because it is assumed that an employee works for 26 days in a month and is entitled to 15 days of wages for every completed year of service.
  • For employees in some sectors, the formula may differ slightly based on specific provisions under the relevant state laws.
• Payment of Gratuity:
  • Gratuity is to be paid within 30 days from the date it becomes payable (i.e., upon resignation or termination).
  • If the employer fails to pay the gratuity, the employee can file a claim with the controlling authority under the Payment of Gratuity Act.
• Disputes:
  • If you dispute the eligibility of your employee for gratuity, you must provide valid grounds supported by evidence.
  • The employee can appeal to the Labour Commissioner or the appropriate authority if gratuity is denied.

It is important to review the specific circumstances surrounding the employee's resignation and ensure compliance with the Payment of Gratuity Act, 1972 (Sections 4, 7, and 8) to address any disputes effectively.